
Class Hd i Ji. 

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Book 



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COPYRIGHT DEPOStK 



ECONOMICS 



THE MACMILLAN COMPANY 

NEW YORK • BOSTON • CHICAGO 
ATLANTA • SAN FRANCISCO 

MACMILLAN & CO., Limited 

LONDON • BOMBAY • CALCUTTA 
MELBOURNE 

THE MACMILLAN CO. OF CANADA, Ltd. 

TORONTO 



ECONOMICS 



BY 

SCOTT NEARING 

AND 

FRANK D. WATSON 

INSTRUCTORS IN POLITICAL ECONOMY IN THE WHARTON 

SCHOOL OF FINANCE AND COMMERCE, UNIVERSITY 

OF PENNSYLVANIA 



THE MACMILLAN COMPANY 
' 1908 

Ali rights reserved 



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LIBHARY of CONGRESS 
I wu CoDies Heceive<' 

;^-3 yuey «i'i t.i'»rv 
CUV9» (X. \XC. IM. 
COPT o. • 



Copyright, 1908, 
By the MACMILLAN COMPANY. 



Set up and electrotyped. Published September, 1908. 



J. 8. Gushing Co. — Berwick & Smith Co. 
Norwood, Mass., U.S.A. 



PROFESSOR SIMON N. PATTEN 

AN INSPIRING TEACHER 

A SYMPATHETIC PRECEPTOR 

A WARM FRIEND 

THIS BOOK IS DEDICATED 

BY TWO OF HIS INTERESTED 

STUDENTS 



PREFACE 

In presenting this text-book on Economics, the authors 
desire to state that in the following pages an effort has 
been made to present the various phases of economic 
thought in a clear and impartial manner. No effort has 
been made to present new theories. 

The authors desire to acknowledge with most sincere 
gratitude the deep interest of Professor Simon N. Patten, 
who stood, ever ready with helpful suggestions at every 
stage of the preparation of this book. 

The authors also desire to extend their thanks to Mr. C. 
Linn Seller, of the Department of Economics, Wharton 
School, for preparing Book VII on Municipal Monopolies. 

University of Pennsylvania, 
August, 1908. 



CONTENTS 

BOOK I. PROSPERITY 

CHAP. — 

I. Prosperity 

(a) China and the United States r^ 

(<5) The Natural Wealth of the United States 

(c) The Labor Force of the United States 

(d) The Capital of the United States . 

((?) The Business Organization of the United 

(/) The Distribution of Wealth . 

(g) Public Utilities .... 

(A) The Study of Political Economy 

BOOK II. ECONOMIC LIFE (CONSUMPTION) 

II. The Economic Life 24 

III. Economic Readjustments 30 

IV. Changes in-Consumption 38 

V. The Standard of Living 43 

VI. Necessities and Luxuries '54 

BOOK III. NATURAL RESOURCES 

VII. Soil and Climate 60 

VIII. Land Reclamation 70 

IX. Mineral Resources 77 

X. Forests 82 

XI. Water Power 93 

XII. Inland Commerce 99 



X CONTENTS 

BOOK IV. LABOR AND INDUSTRIAL EFFICIENCY 

CHAP. PAGE 

XIII. Introduction 107 

XIV. The Modern Labor Force . ... . 112 
XV. Immigration 118 

XVI. City Life . . . 123 

XVII. The School . 133 

XVIII. Child Labor 141 

XIX. Women who Work . . . . . . 147 

XX. Cost of Industrial Progress . . . .154 

BOOK V. CAPITAL AND BUSINESS ORGANIZATION 

XXI. The Origin and Character of Capital . . 161 

XXII. The Problems of Capital 170 

XXIII. The Organizer, the Manager, and the Boss . 177 

XXIV. The Wage Worker 185 

XXV. The Development of Labor Cooperation . . 194 

XXVI. The Factory System 200 

XXVII. Inventions 206 

(a) Inventions and Industry 206 

(d) Inventions and tlie Home .... 208 

XXVIII. Large-scale Production 213 

XXIX. The Utilization of By-products . . . 220 
XXX. The Advantages and Disadvantages of Large- 
scale Production . . . . . . 228 

XXXI. Tendencies in Business Organization . . . 234 



BOOK VI. NEW FORMS OF INDUSTRY 

XXXII. The Railroad as a Public Utility . , . 241 
XXXIII. Railroad Control 250 



CONTENTS xi 

CHAP. PAGE 

XXXIV. The Rise of Modern Industry. . . . 256 

XXXV. Entrepreneur, Partnership, Corporation, 

AND Trust . . . . . . . 267 

XXXVI. The Standard Oil Company . . . . 272 

XXXVII. The United States Steel Corporation . . 286 

XXXVIII. The Corporation and the Public . . . 296 

XXXIX. Anti-trust Legislation 305 

BOOK VII. MUNICIPAL MONOPOLIES 

XL. Municipal Monopolies . . . . .310 

XLI. Transportation 314 

XLII. Water . . . ... . . . 321 

XLIII. Gas and Electricity . . . . . . 327 

XLIV. Municipal Ownership and Operation . . . 334 

BOOK VIII. DISTRIBUTION 

XLV. Introduction to the Theory of Distribution 340 

XLVI. The Theory of Rent 343 

XLVII. The Theory of Interest . . . . . 349 

XLVIII. The Theory of Profits . . . . . 355 

XLIX. The Theory of Wages 359 

BOOK IX. ECONOMIC EXPERIMENTS 



L. Collective Bargaining and the Open Shop . 379 
LI. The Eight-hour Day; Restriction of Output ; 

AND Pace Setting 385 

LI I. Strikes and Lockouts ; Boycotts and Black- 
lists . . 392 

LIII. The Injunction in Labor Disputes . . . 398 

LIV. The Trade Agreement and Arbitration . . 407 



xu 



CONTENTS 



CHAP. PAGE 

LV. The Trade Union 412 

LVI. Methods of Cooperation 424 

LVII. The Results of Cooperation 430 

LVIII. Methods of Profit Sharing 435 

LIX. The Outlook for Profit Sharing .... 439 

BOOK X. ECONOMIC PROGRAMMES 



LX. 

LXI. 

LXII. 

LXIII. 

LXIV. 

LXV. 

Index 



Introduction to Economic Programmes 
The Programme of the "Square Deal" 
The Programme of Government Regulation 
The Programme of Single Tax 
The Programme of Socialism . 
The Programme of Social Work . 



443 
447 
452 
458 
470 
481 

495 



ECONOMICS 



TEXT-BOOK OF ECONOMICS 
BOOK I 

CHAPTER I 

PROSPERITY 

(a) China and the United States 

Those of us who are fortunate enough to Hve in the United 
States, to come into contact with its natural resources, its 
•busy population, and its great aggregations of capital in the 
form of railroads, factories, mines, stores, and houses, can 
well afford to congratulate ourselves, for we are living in a 
land of plenty ; a land of prosperity as contrasted with misery ; 
a land in which there is a surplus of economic goods rather 
than a deficit. 

Why are we rich as a nation ? How is it that we have been 
able to develop forces which are operating to give the United 
States a surplus large enough to permit of the storing up of 
these masses of economic goods? How is it that we do not 
have famines which sweep off hundreds of thousands of our 
people? What is the cause of our prosperity, and what is 
its extent? These are some of the questions which it is 
the design of a course in Economics to answer. 

Perhaps we can best begin answering these questions by 
drawing a contrast between a nation in which deficit is pre- 
dominant and a nation in which surplus is predominant. 
For this purpose we will take China as the nation of deficit 
and the United States as the nation of surplus. 

In China there are over four hundred million people, or 
about five times as many as there are in the United States. 
If the whole population of the United States and forty 



2 TEXT-BOOK OF ECONOMICS 

millions more were to move into the State of Texas, they 
would be about as close together as are the people in the 
Yang-tse Valley of China. China, to use a current ex- 
pression, teems with people. 

The Chinese belong to the Mongolian race. They are 
smaller than the Caucasians physically, but the experience 
of the last twenty years in the development of Japan, whose 
people are admittedly not above the Chinese in capacity, 
has shown that intellectually they are at least the equals 
of the Western races. 

In a generation the Japanese have acquired a knowledge 
of industry and science that the Western races labored two 
hundred years to develop. Not only have they successfully 
acquired this knowledge of the Western people, but in some 
instances they have developed and perfected it far beyond 
the Western standards. The most noteworthy case of this 
is found in the late Russo-Japanese War, during which the 
Japanese loss through disease was almost nothing, while 
among the Russian troops in that war, the American troops 
in the Spanish-American War, and the British troops in the 
Boer War, the death roll from disease was appalling. This 
is only one of the instances in which the Japanese have 
bettered their instruction. 

In natural wealth, China is the equal, if not the superior, 
of any like area in the world. In the first place, it is mag- 
nificently watered. The Yang-tse-Kiang, 3000 miles long, 
is navigable to ocean-going vessels for 1100 miles. The 
Hoang-Ho, 2600 miles long, is connected with the Yang- 
tse-Kiang by the Imperial Canal, and these two rivers and 
the canal form one of the finest water systems in existence. 

The climate of China is that of the Temperate Zone, with 
a range of temperature but slightly different from that of 
the United States. Of the minerals, gold, silver, copper, 
zinc, lead, tin, and mercury exist in considerable quantities, 
while iron of a high quality is very abundant. It is believed 
that the bituminous and anthracite coal fields of China 



PROSPERITY 3 

contain as much coal as those of all the other countries of 
the world combined. The Chinese also have rich deposits 
of niter, gypsum, and porcelain earth from which china is 
manufactured. 

In Chinese manufacturing, machinery is almost wholly 
absent and the only power used is, in most cases, human 
energy. To this condition of affairs is due the fact that no 
heavy or cheap products are manufactured in China, but 
only those things which will sell at a high price, such as silks, 
fine fabrics of various kinds, and other luxuries. 

In spite of the fact that the people are apparently so 
capable and so numerous and the natural resources so abun- 
dant, the industries of China are practically undeveloped. 
For example, iron, instead of being manufactured at home, is 
actually imported, although proper methods could produce 
iron in China as cheaply or more cheaply than at any other 
place in the world. Coal is mined in very limited quantities 
and only by the use of manual labor. The expense of draw- 
ing it to the top of the ground is so great that only the rich 
can afford to buy it. In addition, the transportation facil- 
ities except on the waterways are so poor that a bulky com- 
modity, like coal, cannot be shipped for any distance before 
its price has become prohibitive to all except the most wealthy. 

While agriculture is held in deep veneration, the Emperor 
himself each year plowing a tfurrow and planting some 
seed, and while the Chinese make the best intensive gardeners 
in the world, the customs and traditions which have been 
handed down for generations govern agriculture absolutely. 
The implements used are of the crudest. The American 
plow is rejected with scorn as the peasant turns back to 
the inefficient implement which has been employed from 
time immemorial. Rice is the staple crop and food. The 
only domestic animal which is scientifically raised is the pig. 

Here, then, is a picture of a land full of capable people, 
abounding in natural resources, but without industry and 
therefore in constant danger of want. Crop failure in a 



4 TEXT-BOOK OF ECONOMICS 

district remote from water transportation means starvation. 
There are no railroads, the roads are bad, and goods carried 
along them by means of porters are expensive, particularly 
when the object transported is a bulky one, like food. People 
starve within two hundred miles of an abundant supply of 
food, with no opportunity of transporting sufficient food 
in a short time to avert the catastrophe. In addition to 
these periodic famines, the nation is constantly incurring 
damages and losses in the Hoang-Ho region because the 
river insists on changing its bed, overflowing its banks, and 
drowning thousands of people at a time. 

It may seem inconclusive to say that the deficit condition 
in China is due to a lack of organized industry. The ques- 
tion will naturally arise, if the resources are abundant and 
the people capable, why is there no industry ? Here is another 
and a vital defect in the Chinese system. Men are governed 
by custom. "My father used this tool," is a conclusive 
argument in the ears of the son, and he uses the same tool 
without question. The people of the United States have 
always developed industry irrespective of tradition, know- 
ing that the breaking of tradition is one of the chief means of 
industrial progress. 

When these Chinese conditions are contrasted with the 
United States, the differences are remarkable. In the United 
States with a population of ninety millions, one fifth that of 
China, with natural resources of the richest, and yet no 
better than those of the Chinese Empire, there have been 
developed vast systems of inland transportation and great 
industrial centers which furnish remunerative employments 
to the population and at the same time give to it a surplus 
which successfully prevents any such famines as periodically 
occur among the Chinese. 

In the contrast with the conditions in China, it is inter- 
esting to note the result of the San Francisco earthquake 
which rendered thousands homeless and placed the entire 
city population in jeopardy of starvation. Within twenty- 



PROSPERITY 5 

four hours, provision trains containing all kinds of food and 
shelter, from every section of the country, were on the way 
to the scene of the disaster, and relief was poured in at such 
a rate that not only was there no necessity of starvation but 
there was an abundance for all. While people in China 
starve two hundred miles from stores of food, in the United 
States, food, clothing, and various other provisions are sent 
three thousand miles over rivers and mountains in the course 
of six or seven days to the point where they are needed. 

So much for the difference between the control over natural 
surroundings in the two countries. It is scarcely possible 
to draw a parallel between the conditions of life of people 
in the United States and those of China, because the con- 
ditions in the United States are so infinitely superior to those 
of the Celestial Empire. Suffice it to say, that those things 
which to the Chinese laborer are untold luxuries are part 
of the everyday fare of the average unskilled American 
wage worker. 

In short, as was said at the beginning, China exists in a 
state of deficit and the United States is a state of surplus, 
though in both countries there are capable populations 
and great natural resources. What is the cause of this 
difference between two nations so situated ? Briefly stated, 
it is this. The people of the United States have learned to 
control their environment; that is, instead of letting nature 
dominate, they have learned in a large measure to dominate 
nature. If the Mississippi overflows its banks, as it some- 
times does, the people are not drowned by the tens of thou- 
sands, because long before the break occurs or the water 
reaches a town, the news of the coming flood has been sent 
over telegraph wires and the people are prepared to meet 
it or else have left for places of safety. As a rule, however, 
the Mississippi is not allowed to overflow its banks, although 
it is in exactly the same position as the Hoang-Ho, flowing 
in a channel which is above the level of the surrounding 
country. Hundreds of miles of levees have been built, 



6 TEXT-BOOK OF ECONOMICS 

which, in all but exceptional seasons, successfully confine 
the river within its banks. 

The Chinese depend upon one crop, — rice. If the rice 
crop fails, the Chinese starve. The people of the United 
States do not- depend on one crop, but on many. A great 
part of their food is derived from wheat, but through the 
development of the milling industry, the beef industry, the 
canning and preserving industry, and a score of others it 
has been possible successfully to live through a time of 
shortage in one crop without being in immediate danger 
from starvation for lack of food. In the United States, 
control over the natural environment is so great that people 
are not starved to death or drowned by thousands because 
of an unusual freak of nature. 

This control of the environment has been perfected and 
exercised through scientific agricultural, mechanical means 
of producing and transforming food products; mechanical 
means of providing shelter and clothing; scientific trans- 
portation ; and successful development of material resources. 
None of these things are found in China, and in consequence, 
failing in the control of their environment, the Chinese have 
failed to develop a surplus to meet the occasional crop 
failures and other disastrous events. 

The United States has developed what is known as a social 
surplus. All of the pioducts of industry are not consumed 
at once, — part of them are stored up to assist in future pro- 
duction. 

When the savage of Australasia found a whale which had 
drifted ashore in a storm he at once summoned his friends 
and neighbors and went to work on the whale. Sometimes 
it took them a week, and sometimes longer, and sometimes 
they died from overeating, but they ate until all of the whale 
was gone and then eked out an existence on berries and 
such food as they could find until the gods should send them 
another whale. Americans have a different process of 
securing food. When a large amount of food or the money 



PROSPERITY ^ 

equivalent of a large amount of food is secured by a man, 
he does not go and eat or drink it up at once. There are 
exceptions to this rule, but in the majority of cases he puts 
by a portion of this wealth for a "rainy day." 

In consequence of this process great masses of surplus 
wealth have been stored up in the form of railroads, factories, 
machine shops, houses, and public buildings, and these things 
accruing year after year serve to increase the productive effi- 
ciency of the people and to render them more capable of 
supplying themselves with goods that they desire. 

Not only does this surplus stored up and added to year 
after year guarantee the nation against starvation and 
absolute want, but in addition it supplies it with the things 
which go with economic surplus. In other words, there is 
more than is absolutely necessary to keep body and soul 
together. 

The Chinese live upon rice, but in the United States all 
of the people are able to secure an abundance of nourishing 
food. They have meat, which is a luxury in China, they 
have sugar in large quantities, and are coming more and 
more to have fruit and vegetables in summer and winter. 
They are able to supply themselves not only with enough 
food to keep the wolf from the door, but with a number 
of varieties of food. In short, through the development of 
mechanical inventions, the consumption of food in the 
United States has not only been increased, but it has been 
varied as well. All of these things have been brought about 
through the development of a large surplus in the community, 
which may be used for satisfying the many wants of the 
people and for providing for the satisfaction of the new wants 
which are constantly arising. 

Since this surplus is of such vital importance in the de- 
velopment and continued well-being of the community, 
it is the purpose of Economics to point out, first, that it 
depends for its stability and increase on efficiency in the 
production of economic goods. 



8 TEXT-BOOK OF ECONOMICS 

(b) The Natural Wealth of the United States 

The part played by natural resources in production 
scarcely requires comment here. Originally everything 
is derived from the soil. Food comes from agriculture; 
clothes are the result of agricultural or animal industry; 
the materials from which furniture is made once grew in 
forests; the structural materials for houses once lay in the 
earth in the form of sand, stone, cement, or clay; houses 
are built with the ground for the foundation; men walk 
on the ground ; on it they build factories, stores, and streets ; 
then all of the coal which warms them and the gas and 
electricity which give them light are the result of the ex- 
tractive industries; and the rivers and harbors, mountains 
and valleys, highlands and lowlands, are direct gifts of nature 
from each of which men may derive a particular kind of 
commodity which is used in their industry. 

Let us then glance briefly at the natural resources of the 
country. What are they? Of what importance are they 
in developing an efficient productive system? 

The agricultural lands scattered over the country, to- 
gether with the mineral deposits of the Eastern, the Lake, 
and Gulf States, form the basis of a great industrial com- 
munity. At the same time, the forests and fisheries, 
particularly the former, furnish an important element 
in the list of wealth-producing resources. Nothing enters 
into modern life so intimately as wood. It is used in 
more places and for more things than gold, silver, iron, or 
steel. 

If to these resources is added the possession of several 
splendid harbors, such as those at Portland, Boston, New 
York, Hampton Roads, Va., New Orleans, San Francisco, 
and Puget Sound, it is not hard for one to believe that the 
country is capable, from the standpoint of its natural re- 
sources, of producing great amounts of economic wealth. 
And, in truth, the presence of these natural resources has 



PROSPERITY 9 

been one of the principal factors in developing a control of 
the economic environment. 

That the presence of natural resources does not, however, 
necessarily mean a large surplus was pointed out in the case 
of China. Her agricultural land is most productive, her 
mineral wealth is greater than that of the United States, 
her forests and fisheries of considerable value, her rivers 
and harbors among the best in the world, and yet, in spite 
of all this natural wealth, China remains in a state of deficit. 

Production depends on three things, and the first is 
natural resources. It is important and fundamental, but 
before natural resources can be converted into wealth they 
require the application of another equally important and 
equally fundamental force; namely, labor. 

(c) The Labor Force of the United States 

As has been stated, labor is the second essential in the 
production of economic goods. Without natural resources, 
no economic goods would be produced, and without the 
application of labor to natural resources the production of 
economic goods would be impossible. It therefore follows 
that all of the wealth or economic goods which exist in a 
community are the result of the application of labor to nat- 
ural resources. 

The Chinese laborer receives $.20 for every dollar paid 
to a similar grade of labor in the United States. Yet the 
amount of goods produced by the American laborer is far 
greater in proportion to wages than the amount produced 
by the Chinese laborer. The cause of the difference can 
be traced to the superior ability of the organizers and man- 
agers, the superior skill of the wage workers, the superior 
intelligence and business ability of the whole labor force of 
the United States, together with the superior tools of pro- 
duction employed. 

Ordinarily when a man speaks of "Labor," he thinks 



lO TEXT-BOOK OF ECONOMICS 

of the ditch digger, working with pick and shovel, or of the 
blacksmith swinging a hammer, but in Economics labor 
may be defined as industrial effort, so that any one who is 
engaged in industry is a laborer, whether he works with his 
head or his hands. Therefore, when it is stated that the 
American labor force is superior to that of another country, 
reference is made not only to the carpenter and the miner, 
but to all of the men who engage in productive effort as well, 
from the president of a large manufacturing company down 
to the office boy who does his errands or the teamster who 
drives his trucks. 

One of the distinctive things about the American labor 
force has always been that while it is paid higher wages than 
the labor force in any other country, its productive power 
has increased faster than the increase in the wages paid. 
From this has developed the theory in Economics that the 
highest-paid labor is the cheapest labor. A mechanic at 
$2 a day may turn out $5 worth of work, while a mechanic 
at $4 a day is turning out $20 worth of work. Clearly, 
under such circumstances, it would be to the advantage of 
the employer to pay $4 a day and secure four times as 
much product as it would to pay $2 a day and secure 
a less proportion of product. 

If one mechanic produces $20 worth of product a day, 
while another is producing $5 worth, it does not necessarily 
follow that the man who produces $20 worth is working 
four times as hard, or four times as long, as the other man. 
What it means is that his efficiency is greater. He may work 
more quickly or he may turn out a higher grade of product, 
or he may utilize all of his time to the best advantage. Very 
often one man makes four motions to accomplish a certain 
result which another man can accomplish with one motion. 
In short, the labor force must learn to work efficiently if it 
is to turn out a large product at a low cost. 

A foreigner was employed to aid in the construction of 
a piece of road. His part of the work consisted in breaking 



PROSPERITY 1 1 

stone. This he attempted to do with a stone hammer having 
a handle about three feet long, and every time he struck 
a stone he must bend over. This involved so much exertion 
that at the end of a half day the man was almost exhausted, 
and complained to the boss of the hardness of the work. 
The boss laughed at him, and when he started to work in 
the afternoon showed him the Yankee trick of putting a 
four-foot handle in the hammer and standing up straight 
while the stones were broken. By this simple device not 
only was the man's back saved, but he was able to accom- 
plish much more work in the course of a day, as his physical 
energy was not exhausted. 

Intelligent industrial training and skill in workmanship 
really count for something; they go to produce a product 
of superior quality and of increased quantity; and upon 
these qualities a premium should be placed. 

It is not strictly accurate to say that the American labor 
force is on a higher plane than that of any foreign country. 
Until recent years, that was undoubtedly true, but the in- 
troduction of enormous nunibers of labor-saving machines 
has made it possible to employ what is ordinarily known as 
"cheap labor." For example, a Hungarian laborer is paid 
$1.50 a day to stand in front of a machine and feed into 
it long bars of iron which drop out at the other end, after 
having undergone several operations, as a finished bolt or 
screw or some other product. The introduction of highly 
developed machinery has led to an increased demand for 
unskilled labor, which provides no incentive for the wage 
worker to develop, but makes of him and keeps him an 
unskilled wage worker. 

This "cheap labor" consists largely of the less efficient 
Americans and the great number of incoming immigrants, 
and while much of it has come in with specialized machinery, 
a great portion is used because it is cheaper than machinery. 
Before the passage of the Contract Labor Law, which pro- 
hibits the entrance into America of any laborer who is coming 



12 TEXT-BOOK OF ECONOMICS 

here under a contract with an employer to work for him, 
large numbers of immigrants were imported by great or- 
ganizers of industry and used as "cheap labor." The 
result was the development of a system of utilizing human 
energy to do a great deal of work which can better be done 
by machinery. So long as the "cheap labor" is cheap, it 
will be used in place of the machines. When the "cheap 
labor" becomes expensive, machinery will be substituted 
because much of the work done by the unskilled workers 
could as readily be done by machinery. 

For example, in the manufacture of glass bottles, each 
blower has two or three boys to assist him in making the 
bottles and a boy to carry them, when blown, to the annealing 
oven, where they are gradually cooled to prevent their crack- 
ing. This carrying process may be done by very young 
boys who are paid from $.60 to $1.00 per day or per night 
for their services. In some factories automatic carriers 
have been introduced to carry the bottles. This device does 
away with the employment of a number of small boys, but 
it was introduced only when the supply of boys became so 
small that either no boys at all could be hired, or else the 
increase in demand over the supply had raised their wages 
to a prohibitive figure. If the proper methods were em- 
ployed in industry, much mechanical "brute force" labor 
would be replaced by machinery and the number of men 
needed in unskilled occupations greatly reduced. It is idle 
for a human being to compete with steam or electricity. 
Both are better fitted to do heavy work than are human 
muscles, and the men thus released can seek more skilled 
occupations. 

In spite of this tendency to employ "cheap labor" in some 
industries, the general feeling is strikingly in favor of the 
maintenance of a high standard in the labor force which is 
now on a good plane of efficiency. If the United States is 
to maintain its position as a leading industrial nation; if 
the labor force is to be maintained on a high plane of effi- 



PROSPERITY 13 

ciency ; work which can be done by machinery must be done 
in that way, leaving human energy to accomplish tasks 
which cannot be accomplished through mechanical devices 
propelled by mechanical power. 

In developing her labor force, Germany has made a distinct 
advance beyond the position occupied by the United States. 
By providing many schools of technical training, she has 
emphasized the importance of maintaining a highly efficient 
labor force in the community. If the United States is to 
keep pace industrially with Germany, her example in creat- 
ing an educational system which will preserve and increase 
the efficiency of the labor force must be followed. 

The discussion thus far has been of natural resources and 
the labor force in the United States. In these two factors 
are found some of the causes of our great prosperity, but the 
good natural resources and the skilled labor force have 
combined to produce a third factor, capital, which also plays 
a leading part in modern production. 

(d) The Capital of the Country 

Capital consists of those products of past industry which 
are used in production. When labor is applied to natural 
resources, a mass of wealth is created which may be used in 
future production of wealth. For example, when iron and 
wood and labor combine and create a pick or an ax, they 
are making wealth which may be used as capital because 
both the pick and the ax can be employed in the future 
production of wealth. 

Capital is wealth which is used in future production. 
Not only are picks and axes capital, but factories and rail- 
roads and all of the other wealth of the country which is 
being used in industry are also capital. 

The efficiency of a nation depends largely on the ability 
which it possesses to use tools and machinery to the best 
advantage. At the time of the War of 18 12, armies had 



14 TEXT-BOOK OF ECONOMICS 

no other means of moving on the land than those employed 
by Julius Caesar two thousand years before. 

They had the choice of going on horseback or on foot. 
In two thousand years not one new method of land trans- 
portation had been invented. In fact, the armies of 1812 
were somewhat worse off, because Caesar built roads which 
are still used, while the roads in early nineteenth-century 
America were few and poor. 

Since 1812, men have learned how to travel, — on the 
water in steamships ; on the earth in railways, electric cars, 
and automobiles; and in the air by means of air ships. 
While the latter form of transportation has not yet developed 
on a commercial basis, the steamship, the railway, the electric 
car, and the automobile are among the chief transportation 
agents producing efficiency. 

All of the great inventions have come since 1750, and 
their success has been made possible by the use of the two 
sources of mechanical power, — steam and electricity. It 
is the presence of mechanical power in factories, shops, and 
locomotives that enables Dakota to feed New York and 
Connecticut, while New York and Connecticut furnish Da- 
kota with machines and clothing which are used in the 
production of additional food. 

One hundred years ago, the shoemaker went from house 
to house and made the shoes for the family for the year. 
To-day the shoe factory employs a thousand persons and 
makes a pair of shoes in twenty minutes. 

Men have been learning to apply their labor to the natural 
resources in such a way that they shall produce in addition 
to the goods like food and clothing, which are imperatively 
needed from day to day, a large number of tools, machines, 
and other capital which can be used in its turn to produce 
additional wealth, which will again be used to produce wealth. 
In the United States efficient systems of organizing capital 
are being constantly developed. Their presence results 
in the collection of a great mass of capital which is trans- 



PROSPERITY 15 

mitted from generation to generation and is added to and 
perfected by each generation. 

(e) Business Organization 

In modern industry, in addition to the natural resources, 
the labor, and the capital, there is another factor which is the 
result of these three, and which is one of the chief aids in 
developing efficiency. For convenience and clearness, this 
fourth factor will be called business organization. 

Efficient business organization is the combining of land, 
labor, and capital in such a way that they will produce the 
highest amount of product of which they are capable. 

One of the most prominent features in this business or- 
ganization is the development of large-scale production. 
Several factors have combined to make large-scale production 
possible, but among them no one is more important than 
the utilization of the by-products of industry. The small 
slaughterer of beef or pork or veal threw away the offal and 
sometimes the bones. If he kept the latter, they were picked 
by hogs which he had in connection with his slaughter house, 
and eventually sold to the junk dealer. The hides were 
stored in a careless manner. Hogs were scraped and the 
scrapings were thrown away. Around the slaughter houses 
hung a continual stench due to the presence in the air of 
decayed animal matter. 

The great packing houses of the Middle West revolutionized 
this system entirely. They utilize every portion of the 
animal except its bleat or squeal or bellow. The hoofs 
and certain of the joints make glue, the blood furnishes 
albumen, and the scrapings and parings from the leg bones 
and the head make sausage. Bristles are turned into brushes ; 
the bones into knife handles, brush handles, and various other 
bone products; and everything that is left over after the 
other products have been secured is ground up and made 
into fertilizer. Not one particle of animal matter is wasted. 



l6 TEXT-BOOK OF ECONOMICS 

So great is the saving to the producer through the using 
of by-products that the packing house in Chicago can afford 
to market dressed meat in any town with decent railroad 
facilities at a lower price than the local butcher can butcher 
his beef, unless he be exceptionally located. This condition 
has been brought about by the utilization of by-products 
and the resulting concentration of industry, which in the 
case of the beef industry is dependent for its existence upon 
its by-product profits. 

The method of utilizing by-products, while perfected in 
the beef-packing industry, has likewise been applied to 
various other operations such as the manufacturing of steel, 
the utilization of cotton seed, the manufacture of various 
kinds of wood products, and the manufacture of gas and 
coke. 

Another cause of the development of large-scale production 
has been the controlling of the industrial processes from the 
natural resources to the user of the finished product. For 
example, the United States Steel Corporation digs coal and 
iron out of its own mines; ships both of these materials 
in its own cars, over its own railroads; converts them into 
iron and steel in its own furnaces; and makes from this 
iron and steel the required finished product. The company 
controls the complete line of productive enterprises from 
the raw materials in the mines to the finished steel rail or 
girder as it leaves the factory. This process makes possible 
a great cheapening in the expenses of production, be- 
cause neither the materials nor the semi-finished products 
change hands. 

There are other elements entering into large-scale pro- 
duction, but the use of by-products and the control of all of 
the processes of production are the most important in making 
large-scale production a success. 

Civilized races differ from savage ones in many things, 
but perhaps the most distinctive economic factor in the de- 
velopment of the civilized race is the storing up each year 



PROSPERITY 17 

of a small amount of wealth, not in storehouses or barns 
where it may be easily lost and where it is non-productive, 
but in factories and railroads and stores where it cannot be 
easily destroyed and where it is being constantly used to 
produce additional wealth. That is, civilization creates an 
economic surplus and maintains it in the form of tools, 
machines, and other productive factors. By developing a 
business organization, these tools and machines are made 
exceedingly productive of additional wealth. 

This wealth which is being created so rapidly must be 
divided up and those who are aiding in production share 
in the product. But how? 

(f) The Distribution of Wealth 

There can be little doubt in any one's mind of the reality 
of the things so far stated. The United States is immensely 
wealthy; great quantities of additional wealth are produced 
each year; and capital is being continually added to, and 
thus the possibilities of producing more wealth are increas- 
ing. But it is not enough to state that the country is rich. 
What becomes of these riches? 

It is easy to say that a nation is rich, but what of the 
individuals who compose the nation? In Hard Times 
Dickens makes Mr. McChoakumchild, the schoolmaster, 
say : " Now this schoolroom is a nation and in this nation 
are fifty millions in money. Girl number 20, is not this 
a prosperous nation, and ain't you in a prosperous state?" 
And girl number 20, the daughter of a circus rider, replies 
that she cannot say whether it is a prosperous nation or not 
or whether she is in a prosperous state or not, until she knows 
who has the money and whether any of it is hers. 

The United States cannot be truly prosperous and we as 
individuals cannot be well off unless all individuals share in 
the national prosperity. 

How, then, is the wealth of the United States divided up 



l8 TEXT-BOOK OF ECONOMICS 

among those who assist in its production ? The attempt to 
answer this question leads into the broad field of distribution. 

Distribution is the dividing up of the wealth produced 
by industry among those factors which assist in the pro- 
duction of the wealth. There are four factors in the pro- 
duction of wealth, — land, labor, capital, and business 
organization. The wealth which has been created by these 
four factors must be distributed among them. For the use 
of the land, rent is paid ; for the labor, wages ; for the capital, 
interest; and for the business organization, profits. 

So far there is no difficulty. There are four factors assist- 
ing in production and these are the four factors which should 
share in the distribution of the product of industry, but at 
this point difficulties arise. People have learned to produce 
wealth, but as yet they have never learned to distribute it 
so as to satisfy all of the interested parties. The reform 
movements and agitations that fill the newspapers and 
magazines are largely due to dissatisfaction with the present 
method of distributing wealth. Whether it be the strike 
of the union laborer to secure higher wages, the demands 
of the Single Taxer that land alone should be taxed, or the 
contention of the Socialist for a more equitable distribution 
of the social surplus, at its root is the great question of dis- 
tribution. Some one is dissatisfied with the way the wealth 
is being distributed among the groups who have assisted in 
producing it. 

The study of distribution will therefore be a study of the 
problems arising from the division of the wealth produced by 
industry among those factors which assisted in its production. 

(g) Public Utilities 

There was a time in the far-distant past when every com- 
munity was fighting with every other, and was proud of the 
fact that it could satisfy all of its needs without calling upon 
any other. To-day, in America, there is not a community 



PROSPERITY 



19 



which is independent. All are interrelated and work to- 
gether in a condition of greater or less harmony. This 
situation has been brought about by the development of 
public utilities ; that is, unified enterprises which are serving 
a majority of the people in the community where they exist. 

The most prominent of these utilities are the railroads, 
the express, the telegraph, and the post These four methods 
of transportation, now being increased to five by the use of 
the telephone, tie together all corners of the United States 
into one homogeneous group. They take the slaughtered 
products of the Middle Western packing houses to the most 
remote districts. They bring the fruit of California to the 
Atlantic coast. They facilitate business by an effective 
transportation of goods and messages. In short, the modern 
industrial community is dependent for its existence upon 
these agencies. Therefore they are classified as public 
utilities. They serve the majority of the people in the com- 
munity where they exist. 

In these public utilities there is stored a great mass of 
wealth. The railroads, for example, have more than ten 
thousand million dollars stored in them. The social surplus 
of generations has been devoted to building them, organizing 
them, and making them efficient; and, by continual use, 
the nation has learned to depend upon them absolutely 
in its business and social life. 

In addition to these transportation facilities, which have 
been for a long time recognized as public utilities, a number 
of industries have in recent years grown to such proportions, 
and have come to serve such a large group in the community, 
that they may likewise be regarded as public utilities. 

For example, the consumption of hard coal in the eastern 
part of the United States has become so universal that it is 
of particular interest in everyday life and the hard coal 
fields, limited to Eastern Pennsylvania and controlled by one 
interest, may fairly be called a public utility. The central- 
ization of the production of petroleum, of steel, of window 



20 TEXT-BOOK OF ECONOMICS 

glass, and of a number of other necessary commodities in a 
few towns or sections of the country has rendered these few 
towns or sections of pecuHar importance to the entire public. 
In short, these unified industries have come to be public 
utilities, just as the railroad has come to be a public utility, 
because the majority of the people in the community are 
dependent upon them for their daily existence. 

In cities, the street cars, the gas and electricity, the tele- 
phone and the water supply are on exactly the same basis. 
They are public utilities because they serve the whole com- 
munity and are centralized under one control. 

These utilities represent a great amount of economic 
surplus. It was stored up in the form of public utilities 
because they are of use to all of the community and they 
are necessary for the continued production of wealth. 

(h) The Study of Political Economy 

A study of Political Economy will therefore include a study 
of the consumption, production, and distribution of wealth 
and of the public utilities which are the storehouse of so 
much of the surplus wealth of the country. 

The consumption of wealth means the destruction of 
utilities for the purpose of satisfying human wants. For 
example, burning coal to heat a house is consumption. 

The production of wealth means a creation of utilities 
in economic goods. 

A good possesses utility when it possesses the capacity 
to satisfy a want. Utility does not mean usefulness. The 
gold-headed cane is not useful, but it possesses utility because 
it satisfies the wants of the person who carries it. Whenever 
utilities are created in economic goods, that is, when the 
capacity which any economic good has to satisfy a want is 
increased, the act of increasing this want-satisfying capacity 
is called production. 

The utilities created in goods may be of several kinds. 



PROSPERITY 21 

A productive operation may create a utility of place, of time, 
of form or possession. 

A place utility is created when economic goods are taken 
from a place where they are not needed to a place where 
they are needed. Transportation creates place utilities in 
economic goods. Cotton in certain parts of the South or 
corn in certain parts of the West is comparatively worth- 
less. There is so much of it that it is often burned for 
fuel, but either commodity transported to Massachusetts 
possesses considerable value. The utilities in the goods 
have been increased by tr^Lnsportation, because corn or cotton 
will satisfy more wants in Boston than in Texas or Kansas. 
The transportation has created "place utihty" in the goods. 

Any activity which takes goods from a place where they 
are not wanted to a place where they are wanted or from 
a place where they are wanted very little to a place where 
they are wanted very much ; is creating utility in goods and 
is therefore a productive activity. 

Time utilities are created by holding economic goods from 
the time they are not wanted to the time when they are 
wanted. 

Ice in January is seldom wanted and therefore possesses 
little utility, but the same ice stored until July is universally 
wanted and therefore possesses greater utility. This in- 
crease in utility due to the lapse of time is called a ''time 
utility," and the operation which creates the utility is a pro- 
ductive operation. 

The utility created in an economic good by a change in its 
form which enables it to satisfy more wants in the new form 
than in the old, is called "form utility." 

A chair in the furniture factory possesses a greater want- 
satisfying capacity than the boards in a lumberyard. The 
operation of changing the form of the goods and thus 
increasing their utility is a productive operation. Of the 
productive operations of the country a great portion create 
form utilities. 



22 TEXT-BOOK OF ECONOMICS 

When the ownership of goods is transferred from one 
individual to another, "possession utility" is said to be 
created. A retail dealer, by changing the possession of the 
great quantities of goods in his store (much of which he 
himself could probably never use), to his customers, creates 
"possession utility." By a change of owner the goods 
acquire a greater power to satisfy human wants. Utility 
is created in them. 

Production necessarily results in the creation of economic 
goods or wealth, and when this wealth has been created it 
must be divided among the people who have assisted in its 
creation, hence the problems arising under distribution. 
Distribution is the division of wealth produced by industry 
among the various factors in society that have aided in its 
production. 

Modern methods of production have resulted in the creation 
of an enormous surplus of economic goods, — goods which 
cannot be used directly to satisfy human wants but which 
are stored up for the purpose of creating additional goods 
that may be used in the community. Many of these goods 
are stored up in the form of public utilities upon which a 
majority of the people of the community in which they exist 
are dependent more or less directly. The problems arising 
with the development of these public utilities will form no 
small part of the work of Political Economy. 

The objects which Political Economy seeks to attain may 
be summed up as three, — first, to secure the best and largest 
industrial product; second, to secure this product with the 
least possible expenditure of human effort; and third, to 
utilize the wealth thus produced for the benefit of all of the 
people in the community. 

TOPICS FOR CLASS DISCUSSION 

1. Should real prosperity include every member of the community? 

2. Is a nation with a great foreign trade and extensive manufactures 
a prosperous nation? 



PROSPERITY 23 

3. What has been the most important factor in developing the present 
prosperity of the United States? 

4. What are the chief differences between a nation in a state of 
economic deficit and a nation in a state of economic surplus? 

5. What are the characteristic features of the American state of sur- 
plus? 

6. Should the emphasis in Economics be laid on production or on 
distribution ? 

7. What should be the goal of economic progress? 



BOOK II 
CHAPTER II 

THE ECONOMIC LIFE 

In this day when it is common to idealize certain methods 
of living by such expressions as the Simple Life, the Strenu- 
ous Life, it is of interest to note just what the Economist 
means by the Economic Life. 

It is usually most difficult for the student just entering 
upon the study of Economics to grasp the real function of 
money. One is prone to look upon money as an end in 
itself instead of merely the means to the gratification of one's 
desires. Money is merely a convenience. It saves mankind 
from the inconvenience of a barter system of exchange. This 
•does not mean that money is an essential to living. Man- 
kind could still have food, clothing, houses, and all the neces- 
saries of life without the institution of a money system. 
In many ways the various activities of life are like a circle 
beginning and ending in work or pleasure, whichever way 
one chooses to view it. People work to create goods. This 
is none the less true though an individual may seem to work 
for money. The money is valuable only as it exchanges for 
goods which some one else has produced. These goods 
in turn, however, are only means to an end. They are not 
made merely for the sake of making them and then 
storing them away out of sight. They are made 
because they have utility ; i.e. have a quality in them which 
can satisfy some human want, and afford pleasure or benefit 
to the one who uses them. All goods are ultimately used up 
sooner of later, or consumed, as the economist expresses it. 
People consume food and drink, likewise they consume 
clothes and houses. With these various classes of goods, 

24 




THE ECONOMIC LIFE 25 

it is only the length of time required for consumption that 
varies. It is only as one consumes goods that he gains back 
the energy which he expended in mak- 
ing them and maintains himself in 
health. If this were not so, one could 
not repeat day after day the round of 
human activities, — work, enjoyment 
(consumption), and work. This series 
of activities may be represented under 
the figure of a triangle. 

We turn energy into "goods." By consuming "goods" 
we enjoy the utilities which they contain. From these one 
regains his health and energy. Thus the day is a complete 
unit, containing its quota of production and consumption, of 
work and pleasure, of effort and reward, of work and pay. 

To lead an economic life, a man's energy must be effi- 
ciently used in making only those goods which give him 
hack his energy when he consumes them. The economic 
man begins each morning with a fund of energy at least 
equal to that which he had the morning before. His 
energy is not "running down hill " from day to day. 
This sounds commonplace, and yet, in this day when so- 
ciety is working for the prolongation of human life, one 
third of our male breadwinners die between the ages of 
twenty-five and fifty-five, not to mention the many others 
incapacitated for work through poor health or injury. Such 
statistics indicate an uneconomic way of living on the part 
of a large number of our population. Unfortunately, in 
many of these cases, the fault rests not with the worker, but 
with an unawakened public opinion that permits a ten and 
eleven hour work day, and guards too carelessly the condi- 
tions of employment of its workers. 

The economic life counts each day complete in itself. 
The rewards of each day should come within the twenty- 
four hours of that day. Only when it is so, can the indi- 
vidual keep up to his maximum efficiency. The point of 



26 TEXT-BOOK OF ECONOMICS 

view expressed in the economic life loses patience with an 
existence which is all work, and which puts all its enjoy- 
ments off to an uncertain old age, just as much as it dis- 
approves of a life spent solely in consuming goods created 
by the efforts of others. Neither a human machine nor a 
social parasite is leading an economic life. 

One is apt to confuse the concept of an economic life with 
that of an economical life, and so imagine it to be one lived 
on the meagerest lines and almost devoid of pleasure. Such 
is not the case. The economic life is a complete, full life 
containing its share of recreation as well as of work. Sum- 
mer vacations, theater-going, and automobiling are not 
ruled out by the requirements of the economic life. The 
economical life would probably prohibit all these. In the 
ideal of the economic life the only question asked in regard 
to one's pleasure (consumption) is — does it tend to give 
back to the individual his former fund of energy? Does it 
re-create him as well as afford him pleasure? If it does, 
it comes within the activities of the economic life. If, on 
the other hand, an individual is worse off after the consump- 
tion of certain goods, or the enjoyment of certain pleasures, 
than he was formerly, then he has departed from the ideal, 
and his life in so far has become uneconomic. The su- 
preme test is whether that part of the day given over to the 
enjoyment of the fruits of one's labor has a rejuvenating 
effect or not. If it has, it is economic; otherwise, it is not. 
The test is simple — is work begun each morning with a 
rested body, a clear eye, and an alert mind? 

Of course, many pleasures when taken in moderation, are 
economic, while in excess they become just the reverse. 
Each individual must judge of the kind and quantity for 
himself. What would be economic for one would con- 
ceivably be uneconomic for another. The test is personal, 
but, though it varies, is so simple none can mistake it. 

Often one can gain a clearer concept of an ideal by con- 
sidering what is the reverse, — the unideal. We may 




THE ECONOMIC LIFE 27 

picture this by a triangle, as follows; which indicates the 
three ways in which one's daily .,.„„„„ _ 

, , , ■' •' LUXURY OTIUTY 

activities may depart from the 
economic standard. 

First, instead of making the 
amount of goods that would be 
possible with the day's fund of 

energy, only half that amount ENERoyj ^ g^odb wmib 

may be made because of wastes 
which occur through careless- 
ness, inefficiency, or laziness. As a result, to get a given 
amount of utility double the amount of goods must be 
created. 

At the next comer of the triangle is a second place for 
waste to occur. The economist divides consumption goods 
into two classes, luxuries and necessities. In the first class 
he puts all those things whose consumption does not 
make the consumer any better either in body or mind. 
In Economics, luxuries are defined as those goods which 
have no power to restore one's energy, but which rather 
deplete the supply that already exists. It should be care- 
fully noted that this use of the term " luxury " differs from 
that of daily use. It is by the consumption of economic 
luxuries, instead of necessities, that one may depart from 
the ideal of an economic Ufe. 

The third corner of the triangle illustrates the last way in 
which an individual may depart from the ideal of an economic 
life. The human body resembles a storage battery. One 
begins each day with a certain fund of energy. This power 
may be directed into channels whereby goods will result by 
which one may build up his body and brain, or it may be so 
dissipated that his storehouse of energy is steadily diminished. 
Dissipation as used in the diagram has a broader meaning 
than is ordinarily associated with that word. It includes not 
only the various forms of intemperance and vice, but the 
more common departures from the laws of health, as eating 



28 TEXT-BOOK OF ECONOMICS 

at unseasonable times, sleeping irregularly, and living a 
generally unmethodical life. This is the age when a small 
leisured money class are impressing their standards on the 
masses. Evening functions that do not begin until lo p.m., 
may not injure those who take no part in life's activity ; but 
they become a dangerous form of dissipation for those not 
so situated and who must be at work the next morning at 
the blowing of the whistle. A standard that in any way 
undermines the health and robs from the next day the energy 
that it needs for efficient work is uneconomic. 

The ideal of the economic life is of interest as far as the 
individual is concerned, but the real value of the concept is 
perceived when one applies it to a nation of ninety millions 
of people. Reflect what an advance in material prosperity 
we could make as a nation could we eliminate all waste 
through inefficiency. Yet much of our inefficiency to-day 
is due to a misdirected educational policy. We need an 
increase in productive power if we are to have a higher 
standard of living for the masses. We need a change in the 
enforcement of our child labor and compulsory education 
laws, and in the school curriculum itself, if we are to eliminate 
this first obstacle to economic life for the nation. 

Then, again, consider what an advance would be possible 
for a nation whose enlightened opinion had banished "eco- 
nomic" luxuries. The^e are many silly, frivolous things 
made to-day which not only do no good themselves but work 
actual harm. A nation without such luxuries would gain 
not only in general health but also in the number of beautiful 
homes and of all those things that make life worth while. 
The time and energy taken to make a luxury mean just so 
much time taken from making an article of benefit and use. 
And lastly picture the future of a nation which has elimi- 
nated dissipation. The great stream of power that now goes 
to waste in this channel could revolutionize the present 
standard of living, and give us a new civilization. To elimi- 
nate dissipation is not to eliminate pleasure. It merely 



THE ECONOMIC LIFE 29 

involves the turning of energy from the enticing and destruc- 
tive fields of vice to the equally interesting but constructive 
fields of work and recreation. The outlook in this direction 
is not so hopeless as one might at first imagine. As Pro- 
fessor Patten so ably points out in his recent work, The New 
Basis of Civilization^ "Amusement is stronger than vice 
and can stifle the lust of it. It is the base of economic 
efiiciency upon which depends the progress of multitudes." 

Much vice, as criminology is now revealing, is often the 
direct product of a devitalized body or the result of con- 
ditions which do not afford a normal and healthy outlet 
for pent-up energies. Vice and dissipation are largely of the 
environment. The growing enthusiasm for manly sports 
and all forms of athletics seems to be one of the open doors 
to a higher type of individual and social life in which dis- 
sipation will be largely eliminated. 

TOPICS FOR CLASS DISCUSSION 

1. What are the chief obstacles which prevent the American people 
from living "the economic life"? 

2. If you could, would you do nothing always? Why? 

3. Do people actually expend their incomes so as to get the maximum 
utility judged by a standard they would admit to be morally sound? 

4. Could a county better do without money, roads, or food ? 

5. Why cannot one give definiteness to the concept of luxury? 

6. Ought legislation to attempt to prevent luxury? Can public 
opinion affect it? 



CHAPTER III 

ECONOMIC READJUSTMENTS 

One is often prone to measure welfare in terms of dollars 
and cents. We speak of wages as rising or falling, when we 
should ask, Are people living under better conditions, and 
have they stronger constitutions than formerly? The ques- 
tion of an increasing or decreasing income is distinct from 
that of improving conditions. 

A better adjustment to the environment may give people 
benefits and pleasures denied to any of their forefathers, 
either of large or small money income, at an earlier period. 
Many to-day living in the modern two-story house with its 
porch and sanitary plumbing, enamel bath tub, running hot 
and cold water, and steam heat are enjoying luxuries denied 
to kings in the Middle Ages. A comparison of the kinds 
of things that people use in their everyday life, such as food, 
clothing, and housing, is after all the real test of progress and 
not the phenomenon of an increasing or decreasing money 
income. 

We may assume, contrary to the chapter on The Theory of 
Wages, that money income has not increased during the past 
fifty years and yet assert that the people are getting more out 
of life to-day than they ever did before, and that they are 
moving in a direction of being able to enjoy still more. To 
deny this, is to deny the course of progress, of civilization. 

Perhaps in no field has there been so much progress in the 
past fifty years as in that of food supply. Progress here has 
meant not only a great increase in the total quantity of food, 
but in its quality and variety as well. Within the last twenty- 
five years there has been a veritable revolution in methods 

30 



ECONOMIC READJUSTMENTS 3 1 

of agriculture, until to-day we speak rightly of "scientific 
farming." Huge machines now do eflfectively the work 
formerly needing scores of men. Commercial fertilizers and 
scientific fertilization have increased the yield of certain 
crops from 50 to as much as 300 per cent. Irrigation, 
reclamation, and " dry farming " have added to the area of our 
agricultural land thousands of square miles. We have now 
reached a place in our economic development where we no 
longer need fear a shortage of food. 

Hand in hand with the increase in quantity has gone the 
increase in variety. This fact can readily be appreciated by 
a comparison of the average corner store of to-day with that 
of fifty years ago. Many articles of common consumption 
are there now which were either absent or rarely seen at an 
earlier date. Of such are tomatoes, bananas, oranges, and 
many other tropical products, lettuce, strawberries, and the 
whole host of breakfast foods, not to mention all the kinds of 
canned and preserved goods. All these have changed the 
laborer's table from the monotony of stewed meat and bread 
to one with a well-balanced variety. Cheap transportation 
has brought the products of the tropics to our doors, and 
refrigeration and canning have annihilated time as far as 
food supply is now concerned. As a result the average 
family of to-day has a better and more varied diet than at 
any time before. This is of utmost significance, when one 
considers how much of poor health and inefficiency is due to 
devitalized, because poorly nourished, bodies. 

No less marked a contrast can be made between the aver- 
age home to-day and that of fifty years ago. One can hardly 
appreciate the fact until he comes across some of those older 
houses in the city in which no provision whatever was made 
for a bath room, in which the only method of lighting was by 
candle or oil, and where the heating was accomplished by 
the unhygienic method of having a stove in every room. 
Surface drainage was the ordinary system, and unhealthful 
cesspools were attached to every house. The streets were 



32 TEXT-BOOK OF ECONOMICS 

piaved with cobblestones, making them noisy and difficult to 
clean. 

To-day in contrast stands the neat little two-story home of 
the average mechanic, with its sanitary and immaculate bath 
room, its central heater, its porch, and a small patch of green, 
either front or back. It faces a street well paved with either 
brick or asphalt. Through the introduction of the trolley 
car the home can be better situated than ever before. Miles 
of suburbs are now available for residence, which was im- 
possible before the age of cheap transportation. With an 
improvement in the houses themselves has gone an improve- 
ment in their furnishing. Serviceable as well as artistic 
furniture is now manufactured at remarkably low prices, and 
where formerly pianos were the mark of aristocracy, few 
homes to-day are without some kind of a musical instrument. 

If we look to such districts as the East Side of New York, 
we find that while the foregoing description hardly holds 
good, nevertheless signs of progress are there in evidence. 
The new type of tenement house is a vast improvement over 
the old. It is only a question of time before all the older 
type will have disappeared, and those built to replace them 
will then conform to an enlightened public opinion expressed 
through tenement-house legislation. In a sense. New York's 
congestion of population is abnormal. We may soon be 
wise enough to devise means for properly distributing its 
surplus people over the country. When we have, much of 
its so-called "housing problem" will adjust itself. 

The farmhouse, to-day with its telephone, rural free deliv- 
ery, daily newspaper, and many other city conveniences, means 
a more abundant life for those who till the soil, than was ever 
possible before. 

In the variety and quantity of clothes, progress for the 
average man has been no less marked. The introduction of 
the sewing machine has not only liberated much of the house- 
wife's time, but also has enabled the average man to dress his 
family in a style and variety impossible before the introduc- 



ECONOMIC READJUSTMENTS 33 

tion of this time saver. Electric power applied to sewing 
machines has made even greater changes possible. Ready- 
made clothing, including shoes and hats, enable all classes in 
this country to dress in a style approximating a uniformity 
unknown elsewhere though it seems that it will not be long 
before American methods are introduced into Europe. The 
American manufactured shoe has already found favor there. 

The steady increase in the growth of cotton, with its result- 
ing increase in the manufacture of cottons, is affording a 
cheap and suitable style of dress for the majority of people 
dwelling in a climate like ours. We are likely sooner or 
later to break from the English custom of dressing so ex- 
tensively in wool. Our climate does not require it. We are 
making in this line, as elsewhere, better economic adjust- 
ments. 

One of the most far-reaching in its effects of all the changes 
of the last fifty years is found in the field of popular free 
education. To-day the child of the immigrant in the poorest 
districts of the city has provided for him free educational 
opportunities with which the old- type private school of the 
well-to-do classes could not compare. The birth of the public 
school system occurred but yesterday in our educational 
history. In that short time, however, it has made such 
wonderful progress that to-day children of all classes start off 
with educational advantages denied to any child not long ago. 

The improvement has been in many fields. A comparison 
of some of the old-style schoolhouses containing poorly lighted 
and badly ventilated rooms with the modern stone structures 
complete in every detail indicates the general improvement 
that has been made in the physical equipment of the teacher. 

The day when a person was considered fit to teach who 
was graduated solely from the highest class of the elementary 
schools is past. Each city now maintains in addition 
to its courses in the higher schools, normal courses for those 
intending to teach, where the instruction of the young is 
put on a professional basis. 



34 TEXT-BOOK OF ECONOMICS 

Along with the improvements in the physical equipment 
and personnel of the teaching force, has gone a no less 
marked improvement in the curriculum. The idea of 
efficiency is beginning to permeate our educational ideals. 
The addition of manual training, domestic science, physical 
culture, and technical courses of various kinds are indica- 
tions of the kind of change that is being made in our educa- 
tional policy. The newer thought aims to fit people for 
the problems of their individual lives. In addition to these 
changes, the curricula have been enlarged until advanced 
work is now afforded to all by free high schools, and in many 
States, by free universities. Fifty years ago to graduate from 
a high school put a man in a class by himself. To-day the 
event is so common that it merits but passing notice. More- 
over, to-day there exist the additional educational advan- 
tages of free night schools, free libraries, and free popular 
lectures. The combined result of these changes makes it 
possible for the average citizen of to-day to give his children 
educational advantages which a man with double his income 
could not have given a half century ago. 

Still another field in which the family of to-day is better 
off than that of fifty years ago, is in the matter of health. 
The advancement of medical science is in a large measure 
responsible for this, but equally so is the spread of popular 
knowledge of the laws of hygiene. Science has revealed 
as the cause of much disease the presence of little organisms 
known popularly as germs and microbes. This knowl- 
edge has given us the basis for attacking much that formerly 
we fought in the dark. For many years, tuberculosis was 
held to be hereditary and incurable. To-day we know that 
the organism causing this dread disease can exist but a short 
time in the direct rays of sunlight. As a result of the law 
prohibiting the construction of dark interior tenement rooms, 
thousands of death traps have been destroyed in the city 
of New York alone. 

Armed with our new knowledge of disease, plagues like 



ECONOMIC READJUSTMENTS 35 

cholera no longer ravage our cities. It is said that yellow 
fever has for the last time invaded the cities of our Gulf 
States, since science has revealed the cause to be the germ- 
carrying mosquito. Smallpox is no longer the dread that 
it once was, and it is earnestly hoped and expected that as 
a result of the present educational campaign, the White 
Plague will soon be put in the same category. 

To-day we are looking after the purity of our water supply 
as we have never done in the past. Aqueducts and filtra- 
tion plants are now viewed as money well invested. The 
milk supply is being more carefully guarded than ever in 
our past history. We have just fully awakened to the close 
relation between a high infant mortality and an impure milk 
supply. 

Again, we have learned with the passing years more about 
the general problems of public sanitation. All drainage 
must be underground. Sewerage and other waste products 
of the city are subject to scientific handling. Fumigation 
is no longer left to private individuals, but it is made com- 
pulsory by Jaws executed by public boards of health. 

As positive aids to the health of the community have 
come playgrounds, public parks, recreation piers, public 
baths, Y.M.CA. gymnasiums, — not to mention the positive 
teaching of the laws of hygiene as included in the public 
school curriculum and found in the daily press and popular 
magazines. 

Last, but not least, in the improvement of public health 
has been the introduction of the trolley car. This has made 
an outdoor life possible for great masses of people who 
otherwise would be compelled to spend much time in the 
heat of a congested district. As a means of health the trolley 
car stands in the first place. It has given the laborer and 
his family a direct contact with nature which was possible 
formerly to those only who were fortunate enough to own 
a horse and carriage. All these advances are not without 
tangible results. Statistics point to a slowly but steadily 



36 TEXT-BOOK OF ECONOMICS 

moving prolongation of life and a no less steadily falling 
infant death rate. 

In recreation there has been the same advance as noted 
in the other fields touching the daily life of the people. The 
use of electric traction and the growth of pleasure parks 
have been the chief factors in the change. Atlantic Cities 
and Coney Islands are of recent development, and although 
not up to the highest standard of taste in all respects, their 
value as popular means of recreation should not be over- 
looked. With band concerts, boat trips, zoological gardens, 
trolley rides, and people's theaters, there seem to be more 
opportunities for the average man to get recreation for him- 
self and family than ever before. 

In all directions, from the quantity and variety of food, 
to the means of recreation open to the average man, there 
has been a decided advance in the economic adjustments 
of our daily lives. This is important in itself and stands 
distinct from the question of money income. Although 
distinct, the ultimate effect of a better economic adjust- 
ment on the question of money income should not be lost 
sight of. Figures have been compiled showing the money 
value of an education. There are clearly marked differences 
in income between groups which have had a rudimentary 
education only and those which have had a higher form of 
training. The contrast continues for each group up through 
the high school and university grades. If the son of a cobbler 
graduates from a free public high school, the money income 
of that family in the second generation will be materially 
increased. Again, no one can doubt that an increase in 
income must result from an increase in health. Not only is 
the money available for new purposes which originally went 
for medical services, but the family gains added efficiency 
and work power. Each economic adjustment that is made 
removes some from the margin and places them where a 
greater surplus is possible. 

In all respects it is but conservatism to say that the average 



ECONOMIC READJUSTMENTS 37 

man of to-day is in a position to get more out of life than 
he could fifty or a hundred years ago, regardless of the 
question of whether his money income has risen or fallen 
in the meantime. It is inevitable, however, that increased 
income ultimately follows every economic readjustment. 

TOPICS FOR CLASS DISCUSSION 

1. What is the real test of progress for a nation? 

2. Are economic readjustments permanent or not? 

3. What are some of the economic adjustments that we have not yet 
completed ? 

4. What ones do you expect the future to make? 

5. What do we mean by "the course of civilization"? 



CHAPTER IV 

CHANGES IN CONSUMPTION 

Consumption is the destruction of utilities in economic 
goods which is involved in satisfying personal human wants. 

It is an easy thing to confuse consumption with utiliza- 
tion. Utilization is the destruction of utilities in economic 
goods which is involved in the processes of production. 
An example will bring out the contrast. If coal is burned 
in the furnace of a residence on a winter's day, that is con- 
sumption. The utilities in the coal are destroyed for the 
purpose of satisfying a personal, human want. On the other 
hand, if the coal is burned in a boiler for the purpose of 
running a freight elevator in a furniture factory, that is 
utilization. The coal is burned for the purpose of assisting 
in the production of furniture. 

Indirectly, in the latter case, the coal satisfies human 
wants because the elevator will carry the furniture which 
goes to the consumer and satisfies his wants ; but the elevator 
is assisting in the satisfaction of wants only indirectly. Its 
immediate function is that of assisting in production, and 
therefore destroying the utilities in the coal for the purpose 
of running the elevator is utilization. 

These illustrations show the two extremes of consumption 
and utilization, but they give an idea of the relative mean- 
ing of the two terms. Between the two extremes, however, 
there are a host of activities which are in part consumption 
and in part utilization, and there are many other cases that 
might be classed as doubtful. In general it is possible to de- 
termine whether the destruction of utilities is consumption or 

38 



CHANGES IN CONSUMPTION 39 

utilization by deciding whether its immediate purpose is the 
satisfaction of human wants or the aiding of production. 

Taking this general thought as a basis, it is apparent 
that the happiness of any individual or group is directly 
dependent upon the amount and character of the consump- 
tion in that group ; that is, upon the amount of consumption 
goods, and upon their qualities. 

It is scarcely necessary to say that those who do not have 
a sufficient amount to consume are unhappy. The urchin 
freezing in the doorway for a lack of sufficient clothing and 
shelter, or the beggar starving in the streets, is unquestionably 
unhappy because of a shortage in consumption goods. On 
the other hand, the presence of too great an amount of 
consumption goods will create an equal amount of unhap- 
piness, because their ultimate results are dyspepsia or apo- 
plexy. In the modern American community it is probably 
true that there are more people who die from overeating 
than there are people who die from starvation. 

The whole tendency of economic development has been 
to supply sufficient consumption goods for everybody and 
to supply them regularly. 

The primitive man who depends on hunting and fishing 
for his livelihood is starving one day and replete with over- 
consumption the next. The development of a recognition 
of the necessity of stability in consumption forms a basis 
for the great advance which civilization has made. Prog- 
ress cannot be made if people must worry every day over 
the danger of starvation on the morrow. 

Society is slowly learning that to receive the highest 
pleasure from the consumption of economic goods the in- 
dividual must consume neither too much nor too little, and 
the consumption must be regular. In a modern community 
people are clothed and fed from day to day, and are there- 
fore not spending one day in misery and the next in hap- 
piness, because of the absence or presence of consumption 
goods. By maintaining a constant rather than an inter- 



40 TEXT-BOOK OF ECONOMICS 

mittent supply of consumption goods, men are made more 
efficient producers. 

The first step in progress was to make certain a steady 
supply of consumption goods. The second was to render 
the supply of consumption goods more varied. 

The Chinese eat rice as the staple food. This dependence 
of a nation on one staple food has two results. In the first 
place, workers get no particular pleasure out of the monot- 
onous diet of rice, and in the second place, if the rice crop 
fails, the nation starves. In former days the Anglo-Saxon 
race was dependent in much the same way though to a less 
extent on the wheat crop. If a man could eat wheat, he 
was called civilized. If, on the other hand, he was forced 
to subsist on some cheaper grain, he was regarded as un- 
civilized. 

In America consumption is not dependent on one staple, 
but on many. A diet of rice or wheat has been replaced 
by fresh meat, eggs, butter, sugar, canned vegetables and 
fruit, bread and bread products made from various grains, 
and fresh, salt, and canned fish. These goods are derived 
from different sources and contain different food elements. 
This variety in consumption means that if one crop or one 
source of food supply fails, the nation will not starve to death, 
but will turn to some of the other products upon which it 
depends for food. It likewise means that the individual 
will get more pleasure out of eating these varied goods than 
he could out of eating one staple product such as rice. 

Perhaps the meaning of "variety in consumption" can 
be best brought out by an illustration. There is a common 
expression, "eat bread and cheese." But why eat bread and 
cheese together when they can be eaten separately? This 
is the explanation: If a man were to eat bread alone, he 
would be able to eat say one pound, and then his hunger 
would be satisfied. On the other hand, if he were to eat 
cheese alone, he could eat one pound and his hunger would 
be satisfied. 



CHANGES IN CONSUMPTION 41 

Suppose, now, that he combines the two and eats bread 
and cheese together. Instead of having his hunger satisfied 
with one pound of food, he will be able to eat three quarters 
of a pound of bread and three quarters of a pound of cheese, 
— in all one and a half pounds of food. This is because 
he has varied his consumption ; that is, the bread is set off 
against the cheese, and the cheese against the bread, and the 
contrast makes him eat a larger amount of food than he could 
have eaten without the contrast. If to this combination of 
bread and cheese is added a third element, pie, in all prob- 
ability the man will be able' to eat not only the one and a 
half pounds of bread and cheese, but in addition a half pound 
of pie, so that by adding three elements to his consumption 
instead of one, his capacity to consume has been increased 
from one pound to two pounds of food. 

The desirable element in this change is not that more food 
is consumed, but that through the variation of food a greater 
amount of pleasure is derived by each consumer. It is far 
more satisfactory to eat three or four things for dinner than 
it is to eat one thing. A man receives a greater satisfaction 
from eating bread and cheese and pie than he would from 
eating one of the three alone, because each contains different 
elements which are set off against all of the others. 

The same reasoning applies to industrial society. The 
American workman who has for his consumption sugar, 
bread, meat, coffee, canned vegetables, fresh vegetables, 
crackers, cakes, and pie, is more efficient as a producer 
and more useful as a citizen than the Chinese laborer whose 
diet consists of rice. 

Variety of consumption has not stopped with providing 
a varied diet for each meal. In the average family, the 
consumption is further varied by providing one kind of food 
for breakfast, another for dinner, and still a third for supper, 
and then by varying the meals from day to day and pro- 
viding a different meal on Sunday from that served on week 
days. By these means a wide variety of consumption goods 



42 TEXT-BOOK OF ECONOMICS 

is secured and the individual is able to supply his many 
and varied wants. A community in which this is the case is 
far more likely to develop a spirit of "Peace on earth, good 
will to men," than one in which consumption is unvaried 
and the means of satisfying wants therefore few. 

A man who starts to work with a satisfied feeling and 
a good will can accomplish far more in the course of a day 
than a man who is underfed, unsatisfied, and unwilling. 
A diversified consumption means not only more happiness 
and a greater productive efficiency, but it means in addition 
that this greater productive efficiency will provide more con- 
sumption goods so that the social surplus of the community 
will be constantly growing. As production becomes easier 
and greater, the possibility of consuming more varied goods 
is increased. 

Efficiency in production depends directly upon the regu- 
larity, the amount, and the diversity of consumption, and 
the productive power of the community is therefore governed 
largely by the character of its consumption. It behooves 
society to make sure that each member has enough to con- 
sume, that he has it regularly, and that he has a reasonable 
variety of consumption goods. 

TOPICS FOR CLASS DISCUSSION 

1. What is the chief advantage secured by varying consumption? 

2. How varied is your own diet? (Test by keeping a schedule for 
a week or more.) 

3. What advantages have followed the introduction of sugar as a 
cheap article of food? 

4. Show the benefits that will result from an extensive use of tropical 
fruit and vegetables. 

5. How will the consumption of breakfast foods affect the people of 
America ? 

6. What tendencies can be noted in the consumption of meat? 

7. What is the relation between varied consumption and production? 

8. What advantage has a community in which consumption is varied 
over a community in which it is unvaried? 

9. What is the leading factor producing a variety in consumption? 



CHAPTER V 

THE STANDARD OF LIVING 

What is a standard of living ? It has been talked about and 
written about a great deal in the last ten years, but do people 
have a really definite idea as to what is meant by the term? 

While the community at large may have no very definite 
thought behind the term "standard of living," the economist 
does attach to it a definite meaning. From his standpoint, 
a proper standard of living means the amount of economic 
goods which is required to maintain the highest industrial 
efficiency of the individual or family under consideration. 

It is perfectly possible for a family to live on corn bread 
and molasses or salt pork and cabbage, but the worker in 
such a family will not be maintaining his highest efficiency, 
nor will his children develop their highest efficiency under 
such conditions. It is a fact beyond dispute that neither 
corn bread and molasses nor salt pork and cabbage contain 
the most nutritious of food elements. 

In order to develop into strong, efficient workers, children 
require good food, good clothing, and plenty of air and sun- 
light. If one of these essentials is denied, the child will face 
the probability of developing into an inefficient man or 
woman. In other words, good food, sufficient protection 
against the weather, and plenty of air and sunlight constitute 
the things which are necessary to develop the highest efficiency 
in production, and therefore, a sufficient supply of these 
essentials constitutes a proper standard of living. 

In order to maintain industrial efficiency, it is necessary, 
therefore, to maintain a proper standard of living, for only 

43 



44 



TEXT-BOOK OF ECONOMICS 



in this way can an efficient labor force be produced to develop 
the natural resources of the country. 

The question of the standard of living has aroused con- 
siderable discussion in recent years because of three things : 
(i) the great rise in prices; (2) the failure of wages to rise 
as fast as prices ; and (3) the incoming of a large number of 
immigrants. All of these factors acting together help to 
break down the standard of living and create a class of people 
who are living considerably below the standard which is 
recognized in America as necessary for the maintenance of 
highest efficiency. 

It is obvious that if prices rise faster than wages, any given 
wage worker will be able to buy less economic goods than 
formerly. On the other hand, the presence of the immigrant, 
who comes from a country where people exist at a point far 
below the standard of efficiency, tends to lower the American 
wage and living standards. He is willing to live far below 
the American standard and can therefore afford to work for 
lower wages. As the man who will work the cheapest secures 
the employment, the immigrant with his low wage and low 
standard takes the job from the American, who, to compete 
in the labor market, must lower his standard to that of the 
immigrant. 

The question of maintaining a proper standard of living 
is an important one. All of the studies that have been made 
show that industrial efficiency is dependent upon the main- 
tenance of such a standard. While this conclusion is always 
arrived at, authorities differ as to the facts and in many cases 
as to the interpretation of them. It is an easy matter to say 
that a proper standard of living is determined by the amount 
of economic goods necessary to maintain the highest industrial 
efficiency, but a discussion of the price and character of these 
goods and of the specific goods necessary in any given 
community to maintain efficiency, makes the problem an 
involved one. 

In the first place, it is difficult to determine the exact wages 



THE STANDARD OF LIVING 45 

that are received by any given family in the community. It 
is evident that the money wage received on Saturday night 
at the place of employment is not an accurate index to the 
real wage of the family, first, because of differences in the 
cost of living, and second, because of the presence of other 
sources of income. 

The person who has always lived in one locality does not 
realize how costs of living vary from place to place. Per- 
haps the greatest variation occurs between city and country. 
In the tenements of New York City a man pays five dollars 
per month per room, and this rental includes neither heat, 
light, nor furniture, but only the bare room. In many country 
towns this five dollars per month would secure a fairly 
comfortable four or five room wooden house. The house 
would have neither water nor gas connections, but many of 
the tenement houses are likewise without water or gas. In 
addition, many of the tenement rooms receive neither light 
nor air. The five dollars which would provide bare necessi- 
ties in the city would secure comfort in the country. 

Another important item of city expenditure is that for fuel, 
but in the country fuel is almost a negligible quantity, be- 
cause wood, which is very generally burned, can be easily 
and cheaply secured. In one town with which the writer is 
acquainted, the saw mill furnishes hard wood in lengths of 
twelve and fourteen inches for a dollar and a quarter a 
double team load. Any one from the surrounding country 
who wishes to do so can drive to this mill with a large wagon 
and fill it up with hard wood for a dollar and a quarter. 
Such a condition is perhaps not general, but on the whole, 
the question of fuel is never so vital a one in country districts 
and small towns as it is in larger towns and cities. 

The country districts do not furnish as many opportunities 
for spending money as do the city districts. There is no car 
fare to pay, and the temptation to buy in stores is greatly 
lessened by the absence of display advertising in store win- 
dows. 



46 TEXT-BOOK OF ECONOMICS 

The price of food, which is the most important item in 
maintaining a proper standard of living, varies with the 
character of the commodity. The price of meat is about the 
same in the city and in the country. Vegetables, on the 
other hand, are considerably lower in the country, the price 
being the equivalent of the city price with the cost of freight, 
the charge of the commission merchant, and the profits of 
the retailer deducted. On the other hand, canned goods, 
bread, cakes and crackers, differ little in city and country 
districts. The question of food might be summed up by 
saying that things which are produced in the country are 
much lower there than in the city, while things which are 
produced in factories, like crackers and canned vegetables, 
are about the same price in city and country. 

The cost of clothing would vary little in city and country 
districts were it not for the presence in the city of rich people 
dressing extravagantly. The standard of dress which they 
set becomes the conventional or fashionable standard, and 
it must be followed by all who would be "in style." The 
result is an expenditure for trumpery and cheap finery which 
is unknown in the country. 

Wages present a marked contrast. Money wages are 
much lower in the country on an average than they are in the 
city, although the wages of unskilled workers are about the 
same in both places, being perhaps a little higher in the city. 
If a man is going to work at unskilled labor, he is better off 
in the country than in the city so far as his expenses of living 
are concerned. On the other hand, if a man is skilled, his 
chances of securing high wages are much greater in the city 
than in the country, although the expenses of living will also 
be higher. 

So much for the differences in cost of commodities in city 
and country. As to the second influence affecting money 
wages, — the outside sources of supplementing income, it is 
fair to say that the chances in the city are limited. The 
children may act as newsboys, or sell small ariicles such as 



THE STANDARD OF LIVING 4.7 

candy and handkerchiefs on the street, any member of the 
family may beg or depend on charity, or the mother may take 
in clothing or paper flowers to "make up" at home. In pro- 
portion to the population, only a small number of city in- 
comes are supplemented by any one of these means. In 
short, the city presents very few opportunities for securing 
incomes through outside sources. 

In the country, on the other hand, a garden patch is almost 
always possible, and this is a great aid in supplementing the 
family budget. Not only does the garden furnish winter 
vegetables, such as potatoes, turnips, cabbages, beets, and 
carrots, and a long list of summer vegetables, but it may be 
used to supplement the money income by selling some of the 
best produce. 

For people who live near the city, this method of sup- 
plementing income is not only profitable, but practicable. 
Many cases are on record where large returns have been 
secured from the proper management of kitchen gardens. 
From the reports of a kitchen garden contest covering fifty- 
six village gardens, averaging 14,866 square feet (one third 
of an acre), the products grown averaged $61.56 for each 
garden. In the case of one Connecticut garden containing 
four fifths of an acre, the value of the produce was $174.55. 
Of this enough was sold to net the producer $90.31. In 
addition, the family was supplied with summer and winter 
vegetables. 

These two instances show the results that can be obtained 
from a careful cultivation of small tracts of land, and the 
possibility of supplementing the income through these means 
in places where garden patches can be cultivated. 

Not only does the garden patch thus materially supple- 
ment the real income of the family, but it affords an opportu- 
nity to utilize the surplus time of the various members of the 
household. This has two advantages. In the first place, the 
addition to the real wage of the family thus secured makes it 
possible for many families to live nearer a standard which 



48 TEXT-BOOK OF ECONOMICS 

will insure efficiency. In the second place, when spare 
time is fully employed, Satan has no chance to find mischief 
for idle hands. The existence of the kitchen garden has kept 
many a man and boy from the loafer's corner and the saloon. 

To be sure, this system of supplementing the income 
through gardens has been adopted to some extent in cities. 
Vacant Lot Cultivation Associations and School Garden 
Associations have done much to interest children in the 
problems of agriculture, and in many cases have afforded 
considerable additions to the family income. But in the 
modern city the amount of land available for such purposes 
is so small in comparison to the number of families that it is 
a negligible quantity. 

Aside from the differences in the cost of living between 
country and city, which form such a baffling problem to the 
student who is attempting to determine the relative value 
of the two in maintaining efficiency, there are many differ- 
ences between one city and another. For example, a brick 
house with four rooms and water and gas connections can be 
rented in Philadelphia for $12 a month; in Pittsburg the 
same house would cost $20 a month; while on Manhattan 
Island such a house could not be secured at all. On the other 
hand, in New York City, many of the fresh imported fruits, 
such as bananas, are apt so be much cheaper than elsewhere 
because they arrive at that port and are taken by hucksters 
directly from the vessels and peddled through the streets. 

In spite of the difficulty of making an accurate comparison 
between the various parts of the country, it is at least possible 
to give a relative idea, first, of the standard of living at present 
prevailing in the United States, and secondly, of the standard 
which should prevail if highest efficiency is to be maintained. 
By considering these two points, it will then be possible to 
determine whether the present American standard of living 
is one which will insure the highest productive efficiency of 
the population. 

During the last few years there has been a great deal of 



THE STANDARD OF LIVING 



49 



discussion as to the relative rise in wages and prices, and 
different tables compiled by different interests have pro- 
duced very diverse results. Without going into details it is 
fair to say that in the average American city during the past 
ten years the cost of living has increased 30 per cent, while 
the rise in average wages has been 20 per cent. 

In a way these figures are deceiving. While the rise in the 
cost of living is the same for every one who buys the com- 
modities, the average rise in wages is no index to the individ- 
ual increase in wages. For example, in the building trades, 
during the past ten years, there has been a great increase in 
wages which in some cases amounts to far more than the 
increase in the cost of living, but among unskilled laborers 
there has been practically no change in the wages paid during 
the past ten years. Manifestly, the increase in the wages of 
the brick-layer does not at all help the street-sweeper to pay 
his grocer's bills. 

Several recent investigations have been made to determine 
the exact amount that was spent in American families for 
their various items of living, and while there is little agree- 
ment in the conclusions of the different investigations, it is 
perhaps fair to take the conclusions of the Special Committee 
on the Standard of Living appointed by the Seventh New 
York State Conference of Charities and Corrections. 

The Committee devoted a year to the investigation, circu- 
lated elaborate schedules, carefully compiled the statistics 
thus secured, and made a report to the Eighth New York 
State Conference in November, 1907. The conclusions 
drawn by the Committee from its work are as follows : — 

"It requires no citation of elaborate statistics to bring 
convincing proof that $600 to $700 is wholly inadequate to 
maintain a proper standard of living, and no self-respecting 
family should be asked to live on such an income." "The 
Committee believes that with an income of between $700 to 
$800 a family can support itself provided that it is subject to 
no extraordinary expenditures by reason of sickness, death, 



50 TEXT-BOOK OF ECONOMICS 

or Other untoward circumstances. Such a family can live 
without charitable assistance through exceptional manage- 
ment and in the absence of emergencies." 

In this investigation a family was held to include a man, 
woman, and three children, all under fourteen. The report is 
based on statistics secured in and about New York City, and 
represents a fair estimate of the situation in the average 
American city. 

The family with $700 to $800 " can support itself" ; that is, 
secure the ordinary necessities of life. It is obvious, then, 
that at least this amount is necessary to maintain efficiency. 
It might be interesting at this point to take up an analysis ot 
figures, to determine just what $700 to $800 per year means 
to a family of five. 

The following table will give an idea of the annual amount 
needed by a family of five to live in an average American 
city. The rent is for two rooms only, and is therefore below 
the average. 

Rent, 2 rooms, at $7 per month $84.00 

Fuel and light, $2 per month 24 00 

Furniture and utensils, $1 per month 12.00 

Clothing, $2.50 per month 30.00 

Car fare, $.10 per working day 30.00 

Recreation, $.05 per day 18.25 

Sickness and accident, 2% of income 7.50 

Savings, 5% of income 17-25 

Insurance, $500 in all 16.00 

Incidentals, $1 per month 12.00 



$251.50 



These figures represent a minimum, and they make no 
provision for food. 

It is probable that in no American city are any large 
number of men asked to work for less than $1.25 per day, 
or counting 300 working days to the year, $375 per year. 
The working man at $1.25 per day would, therefore, have 
for his food bill the difference between $375 and $251.50, or 



THE STANDARD OF LIVING 5 1 

$123,50. If this $123.50 is split up, it will be found that it 
provides for food, t,^ cents per day for the family; 6.7 cents 
per person per day; or 2.2 cent^ per person per meal. It is 
obviously impossible for any normal person to maintain 
efficiency on 2 cents per meal, yet numbers of unskilled 
workmen are employed and paid as low as $1.25 per day. 

If for $1.25 per day is substituted $1.50, the unskilled 
wage which generally prevails at the present time, the total 
income for the year will be $450. Subtracting from this 
$251.50, there will be remaining for food $194.50. This 
distributed over the year will allow 54 cents per day for the 
family, 10.9 cents per person per day, or 3.6 cents per person 
per meal. The unskilled wage worker with a family of three 
children must therefore exist on three and a half cents per 
meal, a sum obviously insufficient to maintain efficiency. 

If the figures are worked out for $2 a day, which is the 
pay received by semi-skilled workers, the total for the year 
is $600; $348.50 remains for food; and this allows 95.5 
cents per day per family, 19 cents per person per day, or 6.4 
cents per person per meal. 

In the light of these figures, one may readily understand 
why the New York Committee specified that at least $700 — 
slightly more than $2 per working day — is required to 
maintain life on a decent basis. 

In working out these figures it has been taken for granted 
that full time — 300 working days per year — was the rule. 
If the earner is sick, his wages stop. If business is slack, 
men work on short time. If machinery breaks, the plant 
stops for repairs. These and many other contingencies may 
lower the wage considerably below the amounts stated. 

No statistics are compiled upon which a statement of 
incomes in the United States can be based, but in the An- 
nual Report of the Department of Labor for 1903 an inter- 
esting census is given of an investigation of 25,000 families. 
In these families, the average income from husband was 
$651.12, from wife, $128.52, from children, $320.63, from 



52 TEXT-BOOK OF ECONOMICS 

boarders and lodgers, $250.77, and the average total income 
for all of the 25,000 families was $749.50, or about the amount 
stated by the New York Committee to be a minimum for the 
maintenence of life under decent conditions. 

In addition to these figures, a compilation was made of 
the incomes in families in the North Atlantic States having 
three children under fourteen years of age. Among these 
families the average total income was $660, or slightly below 
the New York figures. 

Another compilation of the same schedules included 11,150 
"normal" families; that is, families in which the husband 
was at work, the wife living, in which there were not over five 
children none of whom was over fourteen years of age, 
and in which there was no dependent boarder, lodger, or 
servant. 

The incomes of these "normal" families in the two largest 
States in the Union were as follows : — 

Pennsylvania New York 

Total families i,666 2,154 
Incomes under $200 

19 14 

117 84 



200-300 

300-400 

400-500 

500-600 

600-700 

700-800 

800-900 

900-1000 

1000 and over . . 63 159 



298 268 

388 437 

342 . 452 

249 452 

113 171 

74 134 



It is interesting to note that in the table for Pennsylvania 
the largest number of families range in income from $500 to 
$700, while in New York the largest number range in in- 
come from $600 to $700. In Pennsylvania one fourth of the 
families and in New York one sixth of the families are re- 
ceiving less than $500 per year, an income far below what 
might be called a "decent standard." 

Comparing these figures with the standard set by the New 



THE STANDARD OF LIVING 



53 



York Committee of experts, it is possible to secure some idea 
of the inefficiency in America which results directly from a 
lack of the necessities of life. 

It is not possible to emphasize too strongly the advantage 
of having all of the producers of the community supplied 
with those things which are necessary to maintain their 
highest productive efficiency. While there are large groups 
of people in the United States whose productive efficiency is 
impaired by their low standard of living, the productive 
machinery is not operating advantageously. To secure its 
maximum of production the community must maintain in 
every family a proper standard of living. 

TOPICS FOR CLASS DISCUSSION 

1. In your opinion, what is the most fundamental reason for main- 
taining a proper standard of living in a community? 

2. What is the effect of maintaining a high standard of Hving? 

3. Do high wages mean a high standard of living? 

4. Do economic wants increase more quickly than the standard of 
living? 

5. What would be the effect on the United States of providing a uni- 
form minimum standard of living for all? 

6. What is the ultimate effect on the individual of living below the 
normal standard? 

7. Why should the community at large be interested in maintaining 
a high standard of living? 

8. What is the force most to be relied on to maintain a proper standard 
of living? 



CHAPTER VI 

NECESSITIES AND LUXURIES 

Before leaving the question of consumption, there is one 
very important matter to be discussed; namely, the relation 
between necessities and luxuries. A thing is a necessity if 
it is required to maintain the highest productive efficiency 
of the individual under consideration. Anything consumed 
which is not required to maintain this productive efficiency 
is, therefore, a luxury. 

From what has been said on the question of the standard 
of living, and of the necessity of variety in consumption, it 
is clear that a varied diet of good food is a necessity. It is 
equally clear that sufficient clothing, shelter, and recreation 
are necessities. To be sure, some men live on corn bread 
and pork; other men work eleven or twelve or thirteen 
hours a day throughout the year without change or rest ; but 
neither of these facts affects the truth of the statement that 
these men will not be as efficient producers as they would be 
if they had a greater variety of consumption and a change 
of occupation or a complete rest. 

Speaking in terms of consumption, the use of necessities 
is productive consumption, while the use of luxuries is un- 
productive consumption. 

For example, if a man buys a pair of shoes and wears them 
out in making a gas engine, the wearing out of the shoes is 
productive consumption, because without the shoes it would 
have been very difficult or impossible to make the gas engine. 
In short, he needed the shoes in order to preserve his highest 
efficiency. The destruction of the utilities of the shoes is 

54 



NECESSITIES AND LUXURIES 55 

productive consumption because as a result of the consump- 
tion of the shoes a gas engine, an economic product, has 
been created. 

On the other hand, had this individual taken the pair of 
shoes and worn them out in walking up and down a fashion- 
able street on Sunday afternoons, this method of destroying 
the utilities of the shoes would have been unproductive con- 
sumption, because walking up and down on Sundays is not 
a necessity and no product results from it. 

Therefore, in order to be of benefit to the community at 
large, consumption must result in an economic product, or 
in some advantage that will lead to an economic product, 
such, for example, as increasing the efficiency of the person 
consuming. All consumption which does not result in one 
of these two things is unproductive consumption, and its exist- 
ence in the community means that wealth is being destroyed 
without an equivalent being rendered, or, to use the current 
phrase, that the community is consuming luxuries. 

It is not necessary that a direct, tangible economic product 
result from consumption. The average man who goes away 
for a two weeks' vacation in the summer is a more efficient 
producer for the other fifty weeks than he would have been 
had he stayed at his work for fifty-two weeks instead of fifty. 
In the fifty weeks, after deducting his two weeks' vacation, 
this man will produce a greater economic product, and a 
better grade of economic product, than he would have pro- 
duced had he been required to work fifty-two weeks during 
the year. As the two weeks' vacation makes the man a 
more efficient producer, the consumption involved in the 
vacation is productive consumption, because through it the 
efficiency of a member of the community has been increased. 

There are still men who maintain that vacations are bad 
things; that it is a good thing for a man to work every 
moment of the time while he is not eating or sleeping; and 
that recreation makes people dissatisfied and uneasy. The 
tendency of modern industrial life in America, however, is 



56 TEXT-BOOK OF ECONOMICS 

toward vacations and a lessened number of working hours, 
thus placing at the disposal of the working population a 
greater amount of leisure time which may be utilized bene- 
ficially or otherwise, depending upon the attitude of the 
community and the training of the individual. 

When every one in a community is supplied with the ne- 
cessities of life, that is, with those things which keep his 
productive efficiency at its highest point, the limit of produc- 
tive consumption for that community has been reached. 
All other consumption must be unproductive, because by 
means of it no additional efficiency can be attained. On 
the other hand, if there be one individual in the commu- 
nity who is not supplied with the goods necessary to main- 
tain his highest efficiency, the community is really wasting 
its resources, for it is not securing the largest possible 
product. 

The reason for this is obvious. The man who receives 
less than the amount necessary to maintain him at his highest 
point of efficiency is very much like a dull ax. It is possible 
to chop with a dull ax, but a few moments at the grindstone 
will make chopping twice as easy and twice as effective 
because there will be less friction. If a man is existing on 
less than the amount of goods necessary to maintain his 
highest efficiency, his production will be small in quantity 
and poor in quality, and his dissatisfaction and misery will 
be great. This man can produce something, but a slight 
increase in his consumption goods (to the point of providing 
him with all necessities) will double his product and cut in 
half his unhappiness and dissatisfaction. 

As has been pointed out, there are in America a great 
number of families which are existing below the standard of 
living which maintains highest efficiency. A small increase 
in the consumption goods supplied to these people would so 
increase their productive efficiency as to return to the com- 
munity at large many times over the amount expended in 
increasing their consumption goods to the required standard. 



NECESSITIES AND LUXURIES 57 

From the standpoint of the community at large, it is there- 
fore a business necessity that every producer or prospective 
producer be supplied with consumption goods to maintain 
his highest efficiency. It is only thus that the community 
can be supplied with the maximum of goods at the minimum 
of expense. 

Thus far the discussion has included those living below 
the standard, but in the United States all do not live below 
the standard. On the contrary, while a portion of the popu- 
lation exists below a proper standard of living, a portion 
likewise exists above the necessary standard of living. The 
people included in this group are supplied with a greater 
amount of consumption goods than they need to maintain 
their efficiency as producers. They are therefore consum- 
ing luxuries. 

An oversupply of consuming goods is as bad as an under- 
supply of consumption goods. An undersupply of goods 
eliminates people from the community through starvation or 
exposure, or, to use the current economic phrase, they are 
eliminated through privation. It is equally true that a great 
number of people are eliminated from the community by 
over indulgence, or through dissipation. Thus, at both ends 
of the scale, people are being eliminated from the community, 
one group by privation and the other group by dissipation. 

From this state of affairs it is easy to deduce the theorem 
that too much is as bad as too little ; that, therefore, the ideal 
community would supply to each person the necessities 
requisite for the maintenance of his or her highest industrial 
efficiency and that all other goods should go to form a part 
of the social surplus which replaces and increases the capital 
of the country. 

It does not follow from this that the consumption of eco- 
nomic goods should be static. Indeed, quite the reverse 
should be true. The consumption of the community should 
set the pace for its production. At the present time the 
reverse is attempted with disastrous results. 



58 TEXT-BOOK OF ECONOMICS 

Necessities and luxuries are not fixed terms. They change 
with each generation. Necessities increase in number as 
civilization advances. The luxury of one age is the necessity 
of the next. It is not long ago since underclothing was a 
luxury which could be indulged in only by the rich. It is 
now at the disposal of all. Sugar is to-day a staple consump- 
tion good used by every one, whereas it was once a luxury 
purchasable only by the most wealthy. 

As a population is educated it advances its standard of 
necessities by increasing the variety of its wants. 

Things cannot become necessities until a majority of the 
population actively want them, and to have an active want, 
a person must also possess the power to purchase. If a 
good is to be classified as a necessity, not only must a large 
number of people want it, but they must be able to purchase 
it as well. This increase in active wants, and therefore 
in necessities, means that each person will consume more 
regularly and consume a greater diversity of commodities, 
and will therefore receive more satisfaction from the con- 
sumption. 

If a community could be maintained in a condition where 
luxuries were eliminated, necessities supplied, and a system 
of thorough education instituted, whereby the wants of the 
population could be constantly increased and diversified in 
beneficial ways, the rate of increased consumption would be 
the measure of the increase in production. In such a state 
of society it would be impossible to have the country period- 
ically prostrated by a phenomenon commonly described as 
"overproduction," or more accurately, the inability of the 
community to consume what has been produced. 

TOPICS FOR CLASS DISCUSSION 

1. What things are necessities in the community in which you live? 

2. What are luxuries? 

3. Should every one be guaranteed the necessities of life? 

4. Should any one be allowed luxuries? 



NECESSITIES AND LUXURIES 



59 



5. What is the eflfect of luxury on the second generation? 

6. Does luxury increase economic efficiency? 

7. What group in the community is chiefly benefited by luxury? 

8. Does luxury for some involve privation for others? 

9. Should luxury be permitted to any before all are supplied with 
necessities ? 



BOOK III 

CHAPTER VII 

SOIL AND CLIMATE 

Some one has well said, " Man is a land animal." From 
childhood to old age his life is linked with the earth from 
which he got his body, by which he renews his body, and to 
which his body ultimately returns. 

Consider for a moment the number of things which com- 
posed your morning meal that came from the earth either 
directly or indirectly. It will include everything from your 
orange to your bread and butter. The chairs upon which 
you sat were at one time in the forest. The material in the 
tablecloth from which you ate was once growing in some 
field of flax. The china ware from which you breakfasted, 
not to mention your knives and forks, were once far from 
daylight in the earth. In all respects man is dependent on 
his mother earth and her products. His happiness rests 
upon her generosity. The basis of his civilization is laid in 
her resources. 

In discussing production, we saw that there were three 
factors involved, — land, labor, and capital. It is the pur- 
pose of this chapter to ask, first, what is included in this fac- 
tor land; and second, to note the particular characteristics 
of the land with which nature has endowed our own country. 

In Economics, when we speak of "land" we mean not only 
the fields and meadows, but also the rivers, lakes, and bays, 
the things under the earth, as mines of coal and metals and 
wells of oil, the creatures under the water, as fish, and the 
things above the earth, as primeval forests, wild game, and 
birds. In short, all the gifts of nature we call land. It includes 

60 



SOIL AND CLIMATE 6i 

all material things that now exist on which no labor has been 
spent to bring them into their present form. They are, as 
we have said, the free gifts of nature to man, including all 
the raw materials upon which man works to gain his liveli- 
hood. 

The niggardliness or generosity with which nature has 
handed out her gifts to man has had many far-reaching effects. 
The retarded development of Africa is the natural outcome of 
its vast desert, the great heat, its almost unbroken coast line, 
and its few navigable rivers. America, on the other hand, 
with its vast Mississippi Valley, its variety of climates, its 
mineral and vegetable wealth, its great rivers, and its broken 
coast lines with good harbors, has spelled Opportunity to 
millions. There are in these two continents the foundations 
upon which civilizations of very different types can be, and 
have been, built. The one has given us our "dark conti- 
nent"; the other, the basis for our American civilization. 

In a narrower sense, "land" also determines the lines 
along which a given people will diversify their industries 
within a country. Could Columbus, when, he first touched 
American shores, have seen the vast continent with all its, 
latent possibilities, he might have predicted many things 
which have since come to pass. 

He would have looked to the barren New England coast 
with its rocky hills and thin soil, and have predicted with a 
certainty that the people who were to settle that land would 
sooner or later turn their attention to commerce and manu- 
facturing. Could he have seen beneath the surface in 
Pennsylvania, he need not have been a great prophet to pre- 
dict that the lives of citizens of that commonwealth would 
flow in certain definite channels and that there would for 
a time at least be located the great coal and iron center of 
the continent. 

Again, had he cast his eyes over the fertile fields of the 
South, with its subtropical climate, he would have seen that 
here was a land whose natural development would be for a 



62 TEXT-BOOK OF ECONOMICS 

long time at least along agricultural lines. Cotton, slavery, 
and the Civil War are a chain of facts depending largely upon 
nature's gifts to the South. 

In many ways, nature has set down certain broad condi- 
tions which man must reckon with. He may turn them to 
his advantage, but he dare not ignore them. She has said 
to him, "You may be a gold miner in Alaska, and dig coal 
in Pennsylvania, but you cannot reverse conditions," or, 
"You may raise oranges in California but not in Labrador." 

What, then, are the ways in which "land" aids man in 
satisfying his wants? As a matter of convenience, let us 
consider under the six following heads, some of the ways 
in which land forms a basis for modern industry : — 

1. Soil and Climate. 4. Forests. 

2. Land Reclamation. 5. Water Power. 

3. Mineral Resources. 6. Inland Commerce. 

Nature has been bountiful to the United States in many 
ways, but possibly in none has she been more so than in the 
means which she has afforded for agriculture. Its territory, 
stretching for over 1500 miles north and south, makes 
possible a range of climate which is further diversified by 
altitudes ranging from sea-level to elevations of 10,000 feet. 
The most southern part of our country lies opposite the Great 
Sahara and India, while its northern limits, exclusive of 
Alaska, lie opposite the southern part of Germany. 

Over practically all this vast area, almost the size of Europe, 
there is sufficient rainfall to support abundantly varied kinds 
of agriculture ; and even where the amount of rainfall has 
fallen short, as in some sections of our Western States, nature 
has not imposed obstacles too great to be overcome ; for by 
means of irrigation man has made the desert blossom as the 
rose. 

It is hardly an exaggeration to say that the American 
farmer has but scratched the surface of his land as far as its 
possibilities are concerned. The virgin soil nas not had to 



SOIL AND CLIMATE 63 

stand the strain of exhaustive cultivation to which Europe 
has long been subjected. Our ever increasing knowledge 
of scientific agriculture — artificial fertilizers, irrigation, dry 
farming, and rotation of crops — predict ever greater things 
for the future. 

Call in review all the great fertile valleys of the world. 
None will be found to exceed the Mississippi-Missouri basin. 
None are superior, and few are comparable to it. South 
America has its great Amazon basin, but its intertropical 
location and dense growth of vegetation have made it of little 
value. Moreover, man has not fully accomplished that 
difficult task of controlling conditions within the tropics. 
And even when he succeeds in doing so, the inferiority of 
the Amazon Valley to the Mississippi will still be ap- 
parent. 

The nearest approach to the Mississippi-Missouri system 
which Europe has, is the Danube, with its fertile basin in 
Austria-Hungary, but here size, if no other factor, stamps it 
as inferior. 

Africa is woefully lacking in waterways, her only great 
river being better known from its historic interest than be- 
cause of its present economic value. The Nile is consider- 
ably smaller than the Mississippi system, and flows through 
a land which on account of climate and lack of natural re- 
sources causes it to rank far below the American river in its 
possible usefulness. 

Lastly, we turn to Asia for comparison, and we find only 
one, the unruly Yang-tse. Its possibilities are great. These 
can only be realized, however, when the Chinese have learned 
to control its course, and even then it must suffer by compari- 
son. It is no vain boast on the part of America to claim one 
of the most wonderful river valleys of the world. 

We have already spoken of variety of climate as an aid to 
varied forms of agriculture. In no country can be found such 
a wonderful combination as exists in the United States, not 
excepting Russia with its vast domains. 



64 TEXT-BOOK OF ECONOMICS 

From the severe winters of Maine and its cool summers 
to the almost tropical heats of Florida, there are found all 
the intermediate stages of temperature. From the low- 
lying atmosphere of the lower Mississippi to the dry, clear 
air of Colorado and Nevada there is a great range of tem- 
perature. And nature, as though she never tired of change, 
has varied the climate of the Pacific slope by giving hot, dry 
winds to southern California, and moist cooler ones to Wash- 
ington and Oregon. 

It is but conservative to say that so far as fertility of soil, 
variety of temperature, quantity of moisture, and extent of 
area count for anything, no single country on the earth has 
greater natural advantages than America. 

The story of the struggle with nature waged by the early 
American settler and by his successors, the American 
frontiersman and farmer, reads like a novel. The ingenuity, 
skill, and perseverance in wresting from the soil thousands 
of millions of tons of food, fiber, and fuel, to sustain life, 
and make it more worth the living, are achievements com- 
parable to serving mankind with the pen or brush. 

To those who are reared in the city, agriculture too often 
is looked upon as an occupation of second importance. 
One fails to realize that at present over half our 90,000,000 
population are dependent directly or indirectly on agriculture 
for their livelihood. One does not credit the fact that the 
fixed capital of agriculture, which includes value of lands, 
buildings, machinery, and tools, was, at the census of 1900, 
$20,514,001,848, or four times the amount of fixed capital 
devoted to manufacturing. 

The Bureau of Statistics of the Treasury Department 
has recently prepared an excellent map, showing the agri- 
cultural resources of the country. As is to be expected, 
the division of the country on such lines must be arbitrary, 
but a review of its principal features will be helpful as a 
background for a more complete study of American agri- 
culture. 



SOIL AND CLIMATE 65 

The New England States and New York are grouped as 
having gone over almost exclusively to dairying and mixed 
farming. The central strip of States running from New 
Jersey and Delaware, Maryland and Virginia, on the east, 
to Colorado and Nevada on the west, form the corn and 
winter wheat belt. To the north, around the Great Lakes, 
is the spring wheat district, while to the south, including 
Texas, cotton is still king. All the rest of the Western States, 
excepting those immediately adjacent to the Pacific Ocean, 
have as their leading industry wool and stock raising. The 
remaining States of Washington, Oregon, and California 
are characterized as raising chiefly grain and fruits. After 
a long state of experimenting, each section of the country 
has largely gone over to producing that for which it is best 
fitted by nature, — Texas to cotton, the Dakotas to wheat, 
California to fruit. 

Let us take a bird's-eye view of the agricultural life of 
our people. First, there is the man who devotes his energy 
to mixed farming, which is characteristic of the New Eng- 
land and New York group of States. It is a fact of general 
observation that farmers in the neighborhood of cities and 
larger towns have more varied opportunities for agriculture 
than the larger farmers of the West. He is near his market, 
and so it is possible for him to turn to mixed farming and 
dairying. With this in view, it is not strange to find that 
section of the country which is characterized as the dairying 
and mixed farming section the same as the most densely 
settled portion of the country; namely. New England and 
New York. 

One is inclined to underestimate the amount of wealth 
that this use of land contributes to the country. We rather 
despise the humble potato and smile at the hen as money- 
makers, yet the value of the former for 1906 was $150,000,000, 
and the eggs laid per year at the time of the last census 
represented no less than $144,286,158 of wealth. Of the 
great staples of the country listed according to money value. 



66 TEXT-BOOK OF ECONOMICS 

potatoes stood sixth on the list, only two points below wheat, 
while hay, a product of mixed farming, stood third. 

By far the most valuable crop of the whole country is 
corn, the leading product of the next group of States in our 
classification. It leads off the list of the staple products 
by a wide margin. Its importance is represented not only 
by $1,100,000,000 of wealth, the value of the crop in 1906, 
but also by the vast live-stock industry which has its head- 
quarters in certain large cities in the corn belt, like St. Louis 
and Chicago. The live-stock industry owes its existence 
to the wonderful corn crops of the country. 

Next comes the section of the country devoted mostly to 
wheat. Our wheat supply is of two kinds, known as the 
winter and spring varieties. The former grows farther 
toward the south, in the belt about coextensive with the 
corn. The spring wheat comes to maturity later. Its home 
is the Dakotas, Minnesota, and Wisconsin. Besides the 
wealth which the combined crop represents of $450,000,000, 
wheat is the backbone of the great milling industry 
which has grown up in and around Minneapolis. This 
great area, devoted to wheat and its milling, has sometimes 
been termed "the bread basket of the world." While this 
is possibly an exaggeration, it is one of the few great wheat 
centers of the world, its only worthy rivals being Canada, 
Southern Russia, and Argentina. 

Second on the list of great staples of the country, and 
second on the list of all our exports, is cotton. It is the prin- 
cipal crop of the southern section of our country, embracing 
eleven States, including Texas. It is our greatest export to 
England, and it also supplies the raw material for the vast 
cotton industry in this country which now stretches from 
New England to the Gulf. The important role that this 
crop plays in international trade cannot be overestimated. 
The South is not only the great cotton-producing section of 
the United States, but of the world. The only riyals are 
Egypt and India, and they rank far lower. The one State 



SOIL AND CLIMATE 67 

of Texas raises more cotton than all British India and nearly 
three times as much as Egypt. At present we furnish about 
75 per cent of the world's cotton supply, our share being 
valued during the past year at no less than $640,000,000. 

The western group of States, exclusive of those on the 
coast, are the home of the wool and live-stock industry. While 
the former is important, it has never been able to meet the 
home demand of the manufacturers, much less to play any 
r61e in international commerce. Wool has been the bone of 
contention in many tariff schedules, and the demand for free 
wool is ever present. However, what the section of the 
country misses in producing wool, it makes up for in raising 
live stock. Its value according to the last census ran into 
many millions of dollars. The superiority in product is 
not only one of quantity, but of quality. Some of our live 
stock is of world-wide fame, and often is exported on the 
hoof for purposes of breeding. 

To mention the ways that land has aided man along 
the lines of agriculture and omit reference to fruit culture 
would be a serious oversight. Possibly no other State is 
more identified with this industry than California. Its 
brand of grapes has become a household word, while its 
wine industry is rapidly displacing even that of France and 
Italy. The fruit crops of the country represent the return 
on large capital investments. 

In reviewing the uses of land, one is led to ask what has 
been the cause of the rapid and phenomenal success of the 
American farmer? At the basis, of course, lies the fertility 
of the land, its moisture and climate, but beyond these physical 
characteristics are other important factors. First, there is 
the general high intelligence of our farming class. Here 
the subserviency which is usually characteristic of the peasant 
class of Europe is missing. As President F. A. Walker is 
recorded as saying, "The men who tilled the soil here were 
the same kind of men, precisely, as those who filled the 
professions, or engaged in commercial or mechanical pur- 



68 TEXT-BOOK OF ECONOMICS 

suits. . . . This state of things made American to differ 
from European agriculture by a wide interval. There was 
then no other country in the world . . . where equal 
mental activity and alertness have been applied to the soil 
as to trade and industry." 

Second, there is the readiness of the American farmer 
to use new and improved machinery at every stage of his 
work. He throws tradition to the winds and looks only for 
results. The cooperation of the manufacturer in catering 
to his needs, by introducing a system of uniform exchange- 
able parts for his plows and reapers, and other tools, 
has contributed largely to the extensive use of machinery 
by our farmers. The question of a repair is now only the 
matter of waiting for a new part to be sent to replace the 
broken. This requires perhaps only a week or less. The 
return mail or express may bring the desired part, which 
could not have been replaced under the old system in less 
than weeks and at great expense. 

Third, there is the National Department of Agriculture, 
supplemented by the State experiment stations which are now 
in operation in every State and Territory in the Union, in- 
cluding Alaska, Hawaii, and Porto Rico. This has afforded 
the country the most complete system of agricultural research 
in the world. These stations employ almost a thousand 
men of scientific and practical training. During their four- 
teen years of existence as a national enterprise, they have 
spent no less than $14,000,000 in the interest of scien- 
tific knowledge for the farmer. Scientific farming, with 
its rotation of crops, "dry farming," irrigation, and the 
like, are becoming every day more and more characteristic 
of our agriculture. 

Fourth, not the least factor in the growth of our agriculture 
has been our efficient and cheap transportation facilities. 
Transcontinental railroads connecting with transatlantic 
steamship lines have made American wheat a possibility 
for the European markets. The fast freight and the re- 



SOIL AND CLIMATE 69 

frigerator car have brought California and Pennsylvania 
as near together as were Pennsylvania and Massachusetts 
formerly. In addition are the facilities which nature has 
provided by the waterways of the Great Lakes and their 
accompanying rivers and canals, and the Mississippi River 
system with its stretch of 2550 miles. These mean pos- 
sibilities for the American farmer which none other, with 
the possible exception of the Canadian farmer, can ever 
hope to enjoy. 

TOPICS FOR CLASS DISCUSSION 

1. What is meant by the "Economic Interpretation of History "? 

2. What physical reasons account for the greatness of England? 
of the United States? 

3. Has rainfall any relation to the density of population ? 

4. What relation exists between the shape and location of land masses 
of the earth and man's development? 

5. What are the characteristics of the American farmer? 



CHAPTER VIII 

LAND RECLAMATION 

(a) Irrigation 

Streams may supply transportation, water power, or water 
for irrigation. There are a few streams that supply really 
efficient transportation, and a slightly larger number which 
provide good water power; but any stream or body of water 
may be used for irrigating. In some cases the water for 
irrigation is pumped from artesian wells.. In other cases it 
is taken from lakes and streams. In most sections, where 
there is a shortage of rainfall, irrigation is possible, if there 
is a stream, a body of water, or underlying water courses 
that may be tapped by drilling. : ;D'b£ s-di ^juobssiini 

No attempt will be made in this chapter to point out the 
technical details of irrigation or to describe the methods 
employed. The purpose is rather to show how the develop- 
ment of irrigation has opened for agriculture a large amount 
of land which was formerly valueless or at best used only for 
grazing. No subject better illustrates the value of efficient 
business organization. 

The first irrigation in America was conducted by the 
Pueblo Indians, and the Cliff Dwellers, who inhabited por- 
tions of New Mexico and Arizona. Their methods were 
of the crudest, but their work was of such a substantial 
character that the farmers of New Mexico and Arizona still 
use some of their irrigation ditches. 

The first scientific irrigation was begun by the Mormons, 
under their great organizer, Brigham Young. Started in 
Utah, just before the middle of the nineteenth century, 

70 



LAND RECLAMATION 



7^ 



their irrigation work has spread until it covers tracts in 
Wyoming, Idaho, and Arizona. The Mormons met with 
discouragement at first, but by persevering they have suc- 
ceeded in converting what was a desert into a garden. 

During the gold rush to California, the miners built sluices 
to carry water for their mining; and sometimes by tapping 
them themselves, and sometimes by allowing others along 
the route of the sluices to tap them, they learned that a portion 
of the sluice water could be used to immense advantage for 
irrigating the land. This started the irrigation systems 
Which have helped to make - California one of the^ garden 
spots of the world. ^ " - v' ::' 

The Horace Greeley Irrigation: Colony, named after the 
man who was most interested in prompting it, was started 
in 1870. Between 1880 and 1890 there was a boom in irri- 
gation. Hundreds of miles of canals were planned and built, 
and ttiillions of dollars were invested. The money to carry 
oh this booiii was obtained by the sale of stocks and bonds; 
aiid although the agitation was of great ultimate help to 
irrigation, the schemes were, as a rule, financial failures. 

The grow^th of irrigation in the West since 1870 has been 
i-apid. In that year there were 20,000 acres irrigated ;: by 
1880 the number had increased to 1,500,000, in 1899 to 
3,631,000, and in 1900 to 7,539,000. Of this land irrigated 
in 1900, 8b per Cent was devoted to the raising of crops and 
the other 20 per cent to pasture land. While the total cost 
of providing the irrigation for this seven and a half million 
acres was $67,770,000, the value of the crops in 1900 was 
$86,860,000, or a return in one year of 30 per cent more than 
the total cost of the irrigation system. 

The census figures for 1900, which are given above, show 
the growth in irrigation between 1870 and 1900. The great- 
est real gains have, however, been made since 1902, when 
Congress passed the National Reclamation Act, which pro- 
vides for the construction of irrigation works under the direc- 
tioii of the Secretary of the Interior, such works to conform 



712; TEXT-BOOK OF ECONOMICS 

to the state laws and to be developed in accordance with 
local conditions. Because of the great productivity of irri- 
gated land, holdings under the act of 1902 are limited to 
160 acres for any one person. By this regulation the govern- 
ment hopes to do away with the concentration of the irrigated 
land in a few hands. 

Under the act of 1902 the expenses for the construction 
and improvement of an irrigation system must be met from 
the sale of public land. In this way the work was started. 
The settlers who take up irrigated lands are required to pay 
to the government, in ten equal yearly installments, the cost 
of irrigation; so that, at the end of ten years, the government 
has returned to it an amount of money equal to the amount 
spent the decade previous on the irrigation system. By 
this means, every ten years, it is possible to double the amount 
of irrigation work undertaken. 

At the end of the ten years, when the community has repaid 
to the government the cost of installing the irrigation system, 
the system is turned over to the holders of the irrigated land. 
This establishes a democratic method of managing the land. 
It also places on the locality the responsibility for the success- 
ful management of the system. If things go wrong, the blame 
rests at home, not in Washington. 

In the aggregate, the seven and a half million acres of irri- 
gated land sounds like a great amount, but it is only a small 
beginning when compared with the possibilities of the develop- 
ment of irrigation systems. The following figures will give 
a relative idea of the amount of arid or nearly arid land which 
may still be irrigated. The government has in its possession 
a little more than 600,000,000 acres of land. Of this 
amount, — 

70,000,000 acres are sterile and rocky. 

95,000,000 acres are sparsely wooded. 

90,000,000 acres are in timber. 

300,000,000 acres are fit for grazing. 

70,000,000 acres are irrigable. 



LAND RECLAMATION 



73 



The irrigation works thus far constructed, important as 
they are, have covered only about one ninth of the irrigable 
land of the country. If the other eight ninths of this land 
when irrigated produce as prolifically as the one ninth already 
irrigated, at the end of thirty-five or forty years, irrigated land 
will supply crops worth $800,000,000 annually. 

Since the passage of the National Reclamation Act of 1902, 
the government has undertaken the construction of twenty- 
five irrigation projects, the estimated cost of which is sixty 
million dollars and which wiU irrigate 3,198,000 acres, or an 
area equal to the total acreage in crops of Connecticut, 
Massachusetts, New Hampshire, and Florida at the present 
time. 

(&) Swamp Draining 

There is another subject which was included in the terms 
of the National Reclamation Act of 1902 which is fully as 
important as the question of irrigation, namely, the reclama- 
tion of land through drainage. 

As has already been stated, about eight million acres of 
land have so far been made cultivable through irrigation. 
It is estimated that about the same number of acres have been 
brought under cultivation through drainage. However, up 
to the present time, the work of draining land has been carried 
on largely through private or state initiative. The national 
government has done practically nothing. This is not be- 
cause the subject does not deserve attention, but rather be- 
cause, up to a short time ago, such an abundance of land has 
been open to settlers that it has not been necessary to take 
up the reclamation of land on a large scale, either through 
irrigation or drainage. Now that the point has been reached 
where there is no more land available for free distribution, 
it becomes necessary to equip what land there is with the 
necessary appliances for producing crops. 

In the United States there are over sixty million acres of 



^4 TEXT-BOOK OF ECONOMICS 

swamp or overflowed lands. Thus the amount of drainable 
land forms one tenth of the sum total of government lands, 
and is only slightly less in extent than the total amount of 
irrigable land. The notable thing about swamp lands is 
that it is apt to be the richest of any land that the country 
possesses. Take, for example, the swamp lands along the 
Mississippi. They consist of rich, deep soil that has been 
deposited by the river during ages. This soil is formed of 
the finest silt, the scourings of many different kinds of rocks 
carried down from the head waters of the Mississippi and its 
tributaries. 

When in contrast with this one considers that in certain 
sections of the country farmers are attempting to raise crops 
on poor soil eight or ten inches in depth, it can readily be seen 
that the swamp land, if drained, will present opportunities 
far superior to those now afforded by the average farm land. 

It is estimated that if twenty-five million acres of the swamp 
area of the country could be properly drained, it would rep- 
resent a value of $2,500,000,000, or over $100 an acre, and 
would yield crops aggregating $750,000,000 annually. 
Divided into forty-acre farms, these lands, now utterly worth- 
less, would supply homes for a million and a quarter families. 

Florida leads the country with 29,000 square miles of 
swamp land ; Louisiana comes next, with 15,000; the Western 
states have 10,000; Arkansas, 9,000; Mississippi, 9,000; 
Michigan, 7,500; and the rest of the states follow with de- 
creasing amounts of land until in West Virginia there is prac- 
tically no swamp area. 

At the session of 1905-1906, Congress appropriated $15^000 
for the purpose of surveying the swamp lands on the ceded 
Chippewa Indian reservations in Minnesota. The report on 
this survey shows that there was a possibility of draining 
267,000 acres of land, and improving 135,000 additional 
acres. The total cost of this work is estimated at slightly over 
$1,000,000, and the cost per acre will vary from $1.62 to 
$3.23. This is a region in which drained lands are worth 



LAND RECLAMATION 



>7S 



jErom $12 to $15 per acre, so that the government can readily 
afford to invest in the project. 

Perhaps the best-known swamps are; the Florida Ever- 
glades and the Dismal Swamp of Virginia. The Everglades 
is a swamp only during the wet season, and even then there 
are stretches of prairie, inaccessible owing to the water runs. 
Some private attempts have been made to drain the Ever- 
glades, and these have been singularly successful, as the soil 
ranges from three to fifteen feet in depth and is remarkably 
rich, consisting of silt and decayed vegetable matter. The 
Everglades covers more than three million and a half acres, 
a large number of which are drainable at a very reasonable 
expense. 

The Dismal Swamp is covered by patches of water which 
are seldom more than two or three feet in depth, and while 
some work has been done toward its drainage, much still 
remains. Like the Everglades, the Dismal Swamp presents 
no serious engineering difficulties. It is merely a big project, 
"which must be hiandled on a large scale. Apparently there 
is, no agency so well qualified to do the work as the federal 
government. 

■r-:- In Louisiana, near New Orleans, in the Florida Everglades, 
in Minnesota, North Dakota, the Red River Valley in Indian 
Territory, and in parts of California, considerable draining 
has been privately undertaken and has met with great success. 
What remains is for the government to undertake on a large 
scale what has been done by private individuals on a small 
scale. 

In the case of irrigation, as well as that of reclamation 
through swamp drainage, projects, in order to be of value, 
must be undertaken on a scale which is too vast for individual 
enterprise, and which can be most justly and equitably ad- 
ministered and controlled by a government agency. 

The natural resources of the country are valuable and ca- 
pable of great development, as is shown by the growth pf 
the mining and agricultural industries of the United States. 



76 TEXT-BOOK OF ECONOMICS 

But, at the same time, there are 70,000,000 acres of land avail- 
able for cultivation and wonderfully rich in producing power, 
provided water can be supplied to it in sufficient quantities. 
There are likewise 60,000,000 acres more which will become 
wonderfully productive if they can be properly drained. The 
problem of supplying the water in one case and removing it 
in another is intricate and demands careful study, highly 
specialized mechanical appliances, and thorough scientific 
knowledge. The development of these appliances with 
the necessary knowledge forms an integral part of the growth 
of business organization in the United States. 



TOPICS FOR CLASS DISCUSSION 

1. What does irrigation show us in regard to man's control over his 
environment ? 

2. Is the government interfering with a "divine plan" when it irri- 
gates barren land? 

3. Why was irrigation not taken up by the government earlier in 
the history of the country? 

4. Is it better to irrigate the land of the United States or to go over 
into Canada and take up the "free land"? 

5. Why are swamps so rich? 

6. Why are they not more extensively drained and used? 

7. What is the relation between swamp land drainage and business 
organization ? 



CHAPTER IX 



MINERAL RESOURCES 



Without doubt one of the most important bases for the 
industrial supremacy of any nation is its mineral resources. 
That England's supremacy could never have been reached 
without her wonderful supplies of coal and iron is a matter 
of common knowledge. Other factors were involved, but 
iron and coal lay at the foundation of her industrial revolu- 
tion and the remarkable development that followed it. 

The importance of an abundant mineral supply to any 
nation is at once apparent on reflecting how much one's daily 
comfort depends upon coal and iron. In some of its many 
forms we daily come in contact with coal, iron, oil, and cop- 
per, not to mention the precious metals. Iron and coal are 
the foundation stones upon which every manufacturing plant 
rests. Eliminate the two, and you are robbed of your 
machines, a large part of your building, if it is of struc- 
tural steel, and your source of power. Were a country 
without access to iron and coal, its chances of ever advancing 
far beyond the agricultural state would indeed be small. 
Now that we have gone over in a large measure to the 
age of electricity, a third metal may well be added as of 
equal importance with the two just named ; namely, copper. 

In regard to these three metals, coal, iron, and copper, 
admittedly the basis of modern industry, how has nature 
endowed the United States ? According to the last compara- 
tive figures available, the United States produces more iron, 
coal, and copper respectively than any other nation. She 
also stands first as a producer of petroleum, phosphate of 

77 



78 TEXT-BOOK OF ECONOMICS 

lime, lead, gold, silver, and aluminum, all of which are use- 
ful in man's economic activities. 

The richness of our mineral resources adds much to the 
wealth of our country directly. In addition it forms the 
basis for many of our large industries, representing many 
millions of capital and employing many thousand work- 
men. The Standard Oil Company and the United States 
Steel Corporation are conspicuous illustrations of this truth. 

In 1900, for the first time in our history the total value of 
the commercial mineral production of the country exceeded, 
$1,000,000,000. ~ '-'"''^ 

The development of the iron industry in this country dates 
back to colonial days, when iron mining was developed in a 
small way in certain places in the East, notably New Jersey. 
Iron then, and for some time later, was produced by the 
charcoal method, lumber still being available in large quanti- 
ties in this country. England had gone over to a bituminous 
process, and because of its advantages so successfully com- 
peted with American-produced iron that the iron industry 
steadily dwindled in this country until 1839, when it was 
discovered that ore could be successfully smelted by anthra- 
cite coal, an abundance of which existed in northeastern 
Pennsylvania. From that date on the success of the iron 
industry in this country was assured. In 1844 came the' 
discovery of the wonderful Lake Superior ore mines. Gradu- 
ally anthracite pig iron exceeded the output of the ore made 
by the primitive charcoal method. 

In 1864 the Bessemer process was introduced into this 
country. This marked the beginning of the transition from 
the age of iron to the age of steel. It involved two important 
changes. First, bituminous coal and coke were now used as 
the basis for smelting the ore. Second, the seat of the iron 
industry was moved from eastern to western Pennsylvania, 
to the district around Pittsburg, which is well supplied with 
the necessary fuel. These changes occurred about 1875. 
From 1880 on to the present the progress of .the iron and 



MINERAL RESOURCES 79 

steel industry has been phenomenal, going ahead by leaps 
and bounds. By 1890 the United States passed England for 
the first time as a producer of pig iron. At present this 
country heads the list of all iron producers, furnishing at the 
last census no less than 34 per cent of the world's total out- 
put. The chief source of iron ore is the district composed 
of the States of Michigan, Wisconsin, and Minnesota. This 
Lake Superior district supplies about two thirds of the total 
output of the country. The remainder comes largely from 
Pennsylvania, Alabama, and West Virginia. 

The copper industry of the country was slower to get a 
start than iron, but its development has been no less phe- 
nomenal. 1854 marks the beginning of its production 
in this country. For almost a generation after this date the 
copper mines on Lake Superior in Michigan were the chief 
source of supply. By 1880 copper was found in great 
abundance in Montana, and before the end of the century, 
Arizona, Colorado, and California were added to the list of 
copper-producing States. The result of the richness of these 
hew discoveries was that according to the last census the 
United States produces more copper than all the rest of the 
world put together, turning out in that year no less than 
271,000 tons. 

The production of petroleum dates from about i860. 
Fjpm western Pennsylvania, where it was first discovered, 
its production has spread to many other States, notably 
Ohio, Indiana, New York, West Virginia, Texas, and other 
States. Progress has been steady until our production at 
the time of the last census amounted to no less than 
2,660,000,000 gallons, valued at over $75,000,000. We are, 
by far, the largest producers of oil. 

Besides the forms of mineral wealth that we have here 
mentioned in greater detail there are many others with which 
this country is plentifully endowed, and which have proved 
a source of wealth to the country, as may be seen by consult- 
ing the following table, which indicates the relative impor- 



8o 



TEXT-BOOK OF ECONOMICS 



tance of the leading mineral products of the United States 
in 1900: — 



QUANTITIES AND VALUES OF MINERAL PRODUCTS OF 
THE UNITED STATES IN 1900 



Coal: Bituminous (short tons) 

Anthracite (long tons) . 

Pig Iron (long tons) . . . . 

Copper (pounds) 

Gold (troy ounces) . . . . 
Petroleum (barrels) . . . . 
Silver (troy ounces) . . . . 

Natural gas 

Lead (short tons) 

Zinc (short tons) 



Quantity 


Value 


212,500,000 


$221,000,000 


51,000,000 


85,750,000 


13,800,000 


260,000,000 


606,000,000 


98,000,000 


3,800,000 


79,000,000 


63,000,000 


75> 7 50.000 


74,500,000 


35-750,000 




23,600,000 


271,000 


23,500,000 


124,000 


10,600,000 



Just a word about the future. In an industry like mining, 
which is always extracting, and never replacing, one would 
paint at first a rather dark picture for the future. There 
are, however, certain rays of hope which one should not lose 
sight of. This particularly applies to that most important 
mineral, — iron. Fifty years ago ores that contained a high 
percentage of sulphur or phosphorus were of no use. To-day, 
as the result of experimentation, these difficulties have been 
overcome, and millions of tons of ore have acquired commercial 
value. To-day there exist great mountains of titanic ore. 
Because of the titanium they are held as useless to-day, but 
it would require an ignorance of the past history of human 
achievement to say that they will always remain so. The 
opinion of a noted student of geography is of interest at this 
point. "We know but little of the contents of the earth's 
crust. We are acquainted with small spots of the surface. 
Most of the surface, even, is practically unknown to us, and 
so far as minerals are concerned, largely unexplored. We 
know almost nothing of the five thousand feet or so beneath 
the surface, which is within our reach." 



MINERAL RESOURCES 8l 



TOPICS FOR CLASS DISCUSSION 

1. Why are iron and coal called the "foundation stones " of industry? 

2. Can mineral resources be conserved, as is true of forests or fisher- 
ies? 

3. In whose hands are most of the iron ore mines to-day? Why? 



CHAPTER X 



FORESTS 



The early American settlers found the Atlantic Slope cov- 
ered with dense forests. In order to raise the crops which 
they needed to sustain life, they destroyed these forests as 
rapidly as possible. To them the forest was an enemy. 
Not only did it prevent the development of agriculture, but 
it sheltered the Indians and wild beasts, which they feared. 

The settlers had, however, come from countries where forest 
protection was the rule, and regulations were passed at an 
early date providing for the care of the trees. But why care 
for an enemy? Such laws were essential in deforested 
Europe, but why enforce them among the virgin forests of 
America? So the laws were swept aside as the necessity for 
getting rid of the forests became more and more apparent. 

First came the settler, who burned down the trees in order 
to let the sun get in to his crop of maize. Then came the 
lumberman, who was developing a lumber industry and ex- 
porting the products. Last of all appeared the timber butcher, 
who cut the trees, sometimes for the lumber, sometimes for 
the bark, and sometimes for both. In his cutting of the 
mature timber, he destroyed everything which the forests 
contained. When he had passed, what had been a forest 
was a waste. 

This so-called timber butcher is a modern product. He is 
looking for a chance to make money and make it quick. A 
company recently sold to a lumberman all of the timber on 
a certain tract which was "ten inches in diameter eighteen 
inches from the ground." This case is typical of lumber- 

82 



FORESTS 83 

ing methods in America. Such a specification includes every- 
thing except bushes, and clears the ground completely. 
It is obvious to the most casual observer that wood is of great 
importance in the development of modern industry. The 
railroad ties, telegraph poles, paper pulp, furniture, building 
material, and innumerable other things which surround 
the modern man, show its vital importance. Any policy 
which permits the forests of a country to be wiped out of 
existence without any attempt at replacement is suicidal so 
far as a great group of industries is concerned. 

In the previous chapters an effort was made to indicate the 
degree of wealth of certain of our natural resources. When 
one comes, however, to the subject of forests, he encounters an 
obstacle in the fact that our present knowledge in this field 
is deficient. One must be content with approximations, as 
no authoritative estimate can be made at the present time. 
The magnitude of the task and many other difhculties 
have thus far prevented the collection of the necessary 
data. 

It is important that we soon begin "to take account of 
stock." According to government figures our population 
increased 52 per cent from 1880 to 1900, while the in- 
crease in lumber cut for the same period was no less than 
94 per cent. It is further recorded that the United States is 
now using annually 400 board feet of lumber per capita, 
while the average for Europe is but 60 feet per capita, and 
that at our present annual consumption of wood in all forms 
is from three to four times as great as the annual increment 
of our forests. 

Though our data are incomplete concerning the actual 
amount of timber now standing, certain studies have been 
made on which a fairly accurate estimate may be made. 
Perhaps no better idea can be obtained of the value of our 
forest resources than that afforded by the following table, 
which presents the yearly output of our forest prod- 
ucts: — 



84 



TEXT-BOOK OF ECONOMICS 



ANNUAL OUTPUT OF FOREST PRODUCTS 







Quantity 


Value 


Lumber 

Fire wood 

Shingles and lath 

Hewed cross ties 

Cooperage stock 

Turpentine and rosin .... 

Pulp wood 

Timber exported (unsawed) . . 

Mine timber, posts, poles, and 

other products 


Board feet 
cords 


35,000,000,000 
100,000,000 


$560,000,000 
350,000,000 




70,000,000 














cords 


3,000,000 


15,000,000 














Total 






$1,075,000,000 



A forest survey of the United States shows that five groups 
of States embrace the naturally timbered areas of the country 
— the Northeastern States, the Southern States, the Lake 
States, the Rocky Mountain States, and the Pacific States. 
Just a word in passing about each of these groups. 

The Northeast Forest. — The present stand in this district is 
mainly spruce, second-growth white pine, hemlock, and hard- 
woods. For a long time the most characteristic tree of this for- 
est was the white pine, a tree that has long enjoyed great com- 
mercial importance. The only place in the world that this 
tree grows in marked abundance is in the confines of northern 
United States. The white pine is a soft pine. "It is light, 
easily worked, soft, not strong, suitable for the cabinetmaker, 
joiner, carpenter, pattern maker, and the like." Formerly 
this wood was more used for general construction in the 
United States than any other wood. It was also largely 
exported. The trees grow from 80 to 100 feet high, the 
trunks 3 to 9 feet in diameter. 

At the last census the cut of white pine was 5,419,333,000 
feet. This shows a decided falling off over the cut of the 
previous census. Besides, the quality of pine has considerably 
deteriorated. White pine is now becoming so scarce that 
"A I grades cost nearly as much as good mahogany." In 
this Northeastern Forest another tree is found which is 



FORESTS 85 

mentioned as worthy of note, — the spruce. It is a tree of 
increased lumber value, as the best pines are being cut. 
It is now being cut more and more for paper pulp. "The 
production of spruce pulp at the last census was 1,160,118 
cords," the majority of which was used for newspaper and 
other coarse grades. The demands for wood pulp have 
increased of late to such an enormous extent that the do- 
mestic supply has failed to keep pace and there is now a 
strong agitation to lower the duty on Canadian lumber. 

This Northeastern Forest has a double value. First, 
for the lumber itself, and second as a regulator of stream 
flow. The loss from floods for a year in streams which 
have their headwaters in the southern Appalachians was 
recently estimated by the government at over $18,000,000 — 
a loss largely preventable. 

The Southern Forest. — Here are found essentially four 
types of forest, of which a recent government report on The 
Timber Supply of the United States says, these forests "may 
broadly be said to divide the land among them according to 
elevation above sea level. The swamp forests of the Atlantic 
and Gulf coasts and the bottom lands of the rivers furnish 
cypress and hardwoods. The remainder of the coastal plain 
from Virginia to Texas was originally covered with 'south- 
ern ' or ' yellow ' pine — the trade name under which the 
lumber of several pines is now marketed. The plateau which 
encircles the Appalachian range and the lower parts of the 
mountain region itself supports a pure hardwood forest, 
while the higher ridges are occupied by conifers, — mainly 
spruce, white pine, and hemlock." 

The characteristic trees of hardwood forest mentioned above 
as being found on the plateau and lower parts of the Appala- 
chian range are various kinds of oaks. This was formerly 
the district of the black walnut, which, however, now is 
almost extinct. The oaks of this district are of many species, 
most of which are of great commercial value. They are 
hard, tough, strong, and durable. They form suitable wood 



g6 TEXT-BOOK OF ECONOMICS 

for furniture, boat building, wagons, and agricultural imple- 
ments. The characteristic trees of the forest mentioned in 
the government report as occupying "the coastal plain from 
Virginia to Texas" is the "southern" or "yellow" pine. 
This "southern" yellow pine, in contrast to the white pine 
of the northern forest, is "resinous, heavy, hard, strong, and 
difficult to work. The logs are often cut into timber for 
heavy construction as piling, wharfage, bridging." The 
yellow pine is of great value because of the naval stores that 
can be produced from it. In 1900 they were valued at 
$20,344,888. 

The Lake State Forest. — " The Lake States still con- 
tain much hardwood forest in their southern portions. In 
the north the coniferous forest includes, besides the rapidly 
dwindling pine, considerable tamarack, cedar, and hemlock." 

The Rocky Mountain Forest. — This forest occupies iso- 
lated mountain chains separated by grazing lands, deserts, 
or cultivated valleys. The location of these isolated patches 
of forests is determined largely by the degree of moisture 
aiid the presence or the absence of forest fires. The chief 
timber trees of this belt are Western yellow pine, a species of. 
spruce, and the red fir. 

The last great stretch of woodland is The Pacific Coast 
Forest, which extends along the coast west of the Rocky 
Mountain Forest, running through the States of California, 
Washington, and Oregon. This forest is the most densely 
timbered of any in the country, if not in the world. The 
massive trees of California have a world-wide reputation. 
The characteristic trees of the whole district, especially in 
Washington and Oregon, are those of the fir species, esppr 
cially that known as the Douglas fir. The wood is used for 
heavy construction, as bridging, piling, railroad ties. A large 
tree is often from one hundred to three hundred feet high, with 
a trunk of two to fifteen feet in diameter. This wood fur- . 
nished a large export item for this district, and is a source of 
great wealth. Other trees found besides the Douglas fir are 



FORESTS 



87 



the Western hemlock, sugar, and Western yellow pine, red- 
wood, and cedar. Thus one sees of the five forests into 
which the woodlands of the country naturally divide them- 
selves, the Northeast, the Southern, and the Lake State 
forests contain both conifers and hardwoods, while in the 
Rocky Mountain and Pacific Coast forests practically all 
the timber-producing trees are coniferous. 

In reviewing a table showing the percentage of total cut 
for each of the forests, it is of interest to note the shifting 
sources of supply as one region after another is invaded and 
cut out. In 1850, the Northeastern States furnished 54.5 
per cent of our timber, the Lake States 6.4 per cent, the 
Southern States 13.8 per cent, and the Pacific States 3.9 per 
cent, while in 1900, the Northeastern States supplied 16 
per cent, the Lake States 27.4 per cent, the Southern States 
25.2 per cent, and the Pacific States 9.6 per cent. Since 1900 
the product of the Pacific States has risen from 9.6 per cent 
to 20 per cent of the output of the country. This will be 
the last shift, as there now remains no other virgin timber. 

One might compute the number of billion feet of timber 
still standing by combining a number of estimates that have 
been made by various authorities. Such a figure can have^ 
little interest to us. The real test of the wealth of our lum^ 
ber supply lies in the ratio of growth to consumption. In 
ascertaining this one can perhaps do no better than to quote 
an excellent article on The Timber Supply of the United 
States by R. S. Kellogg, Forest Inspector. 

"Only one fifth of our forest area is in National or State 
Forests ; four fifths is either in private hands or likely to pass 
into private hands. It has been shown that the present 
annual cut of forest products requires at least twenty billion 
cubic feet of wood. To produce this quantity of wood with- 
out impairing the capital stock our seven hundred million 
acres of forest must make an annual increment of thirty cubic 
feet per acre. Under present conditions of mismanagement 
and neglect it is safe to say that the average annual increment 



88 TEXT-BOOK OF ECONOMICS 

is less than ten cubic feet per acre for the entire area. This 
means that each year's cut at the present rate takes the growth 
of more than three years. The average age of the trees 
which are being felled for lumber this year is not less than 
one hundred and fifty years. The lumberman could not 
afford to replace them were he blessed with the prospect of 
unequaled longevity, since such long investments are un- 
profitable for private capital. In consequence there arises 
the need that the State and National governments, which do 
not need to look for so high a rate of interest as the private 
investor and which are concerned with the promotion of the 
general welfare, should assume the responsibility of provid- 
ing a future supply of timber. 

"The forest area of the United States is sufficient, if rightly 
managed, to produce eventually timber enough to supply 
every legitimate need. There is no reason why it should not 
some day be brought up to the point of yielding an annual 
increment of more than thirty cubic feet per acre, which, as 
previously said, would supply the quantity of timber now 
consumed, and which if used economically will be sufficient 
for a much increased population." 

The United States has reached a point where its remaining 
forests are of great importance. Many of the forest tracts 
have been cut over and left desolate. The great white pine 
regions in the Northern and Central States have been prac- 
tically denuded of timber and left barren, rocky wastes, 
useless except for reforestation. 

When the lumberman began cutting this white pine, it 
took seven or eight logs to make one thousand board feet of 
lumber. To-day it takes fifty or sixty logs to make one thou- 
sand board feet. From this statement one may readily 
gather that the timber now being cut is far inferior in quality 
and size to that formerly available. 

The effects of a ruthless cutting of timber are, in the first 
place, to deprive the community of their supply of wood. 
If this were the only bad effect, it would be a serious matter, 



FORESTS Sg 

and alarm might well be felt when experts state that the 
timber supply of the country will last only thirty years. 
But the effects of deforestation are infinitely more serious than 
simply depriving the country of its wood supply. The lack 
of timber can be supplied by importation, but a lack of water 
or an over abundance of it cannot be so easily remedied. 

When a mountain range is cut clean of timber, by a speci- 
fication of "ten inches through, eighteen inches from the 
ground," the brush and limbs are left scattered over the cut 
tract. A dry season comes, and a passing hunter drops a 
match or a locomotive throws a spark among this brush. 
The consequence is a forest fire. The fire has been supplied 
with the most combustible materials in the way of dried 
branches and leaves, and it burns fiercely. Most of the vege- 
table matter is removed from the top of the ground and the 
surface of the earth is baked hard. 

Then comes a rain, which, instead of soaking into the 
ground, as it ordinarily does in a wooded district, runs off 
rapidly into the streams, causing a freshet. If the rain has 
been extensive enough and covered a large tract of country, 
it becomes a flood of serious proportions. 

Those who are familiar with a forest readily understand 
the contrast between the soft, porous leaf mold constantly 
filled with moisture and the dry, hard, fire-baked crust of a 
burned-over district. Nature intended the leaves and other 
matter on the forest floor to hold the water from season to 
season. This the ground was able to do until the vegetable 
matter was removed by fire. 

In agricultural districts where the timber has been cut 
from the top of hills, a heavy rain running off rapidly washes 
the soil from the slopes down into the valleys. One of the 
great problems which mountain farmers who have allowed 
their timber to be removed now have to face is that of pre- 
venting washouts on the sloping fields. 

The spongy vegetable matter in the forests was intended not 
only to prevent floods, but to hold the water which fell in 



90 TEXT-BOOK OF ECONOMICS 

rainy seasons, and allow it to filter gradually off into the 
springs and streams during the drier times. In districts 
where the forests have been removed men are surprised to 
find that the springs and streams dry up in the summer. 
In many agricultural districts drought is becoming a serious 
problem during the late summer months. 

The rise in the price of timber to prohibitive figures, 
freshets and floods, the washing away of sloping agricul- 
tural lands, and the failure of springs and streams are all 
phenom.ena resulting from deforestation. They cannot be 
adequately dealt with except by preserving the existing forests 
and entering upon a national campaign of reforestation. 

The results of deforestation are not all direct. The in- 
dustries of the country are depending more and more upon 
water power as a motive force. In districts where turbines 
have been set up and water power is being converted into 
electricity, low streams in the dry summer months force the 
factories to close temporarily. The forest loam no longer 
holds the water from the spring rains. The April showers 
ran off in the form of freshets and floods, causing damage 
from the mountains to the sea. In August and September 
the water which the forests formerly held in the roots and 
loam has already found its way into the lower courses of 
the rivers. 

One of the great drawbacks to generating power on small 
streams is that they are overfilled with water in the spring 
and empty in the fall. Both conditions would be obviated 
if there were timber land at the head waters. 

Forest fires have already been spoken of. They are due, 
first, to the presence in cut -over districts of great quantities 
of brush in which fire gains headway rapidly, and second, to 
the absence of any organized system of preventing and 
checking them. 

Experts state that more timber has been destroyed in the 
United States by forest fires than has been cut by the ax 
and converted into merchantable material. The railroad has 



FORESTS 91 

proved perhaps the most destructive of any agency. The 
sparks from the locomotives start fires in unsettled districts. 
These iireS get good headway before they are discovered and 
burn over thousands of acres, unchecked except by wind 
and natural barriers such as rivers and open tracts. 

The loss from forest fires is estimated at $50,000,000 an- 
nually. In 1902 the Hinckley fire in Minnesota destroyed 
$25,000,000 worth of property and killed 418 people. This 
fire smoldered for two weeks before a high wind came and 
drove it fiercely through the forests. At any time during 
these two weeks an effort on the part of skilled foresters could 
have extinguished the fire and saved the lives otherwise sac- 
rificed. In 1903, 650,000 acres were burned over in the 
Adirondacks. In that year the direct loss to the state of 
New York from forest fires was estimated by the State Forest 
Commissioner at between three and four million dollars. 

Enough has been said to show that the policy of allowing 
unchecked timber cutting and of permitting the destruction 
through fire which now goes on is in the long run a dangerous 
policy. 

If the timber supply of the country will last but thirty 
years, it seems unnecessary to state that every stick of it 
should be guarded and that it should not be wantonly de- 
stroyed through forest fires and timber cutting. Europe has 
waked up to the fact that its timber supply is in danger of 
being exhausted. To meet the situation, laws have been 
passed in the leading countries, surrounding the cutting of 
timber with stringent regulations. The governments own 
large portions of the forest lands, and cutting is permitted 
on them only of trees which have reached maturity. In some 
cas6s the law requires two trees to be planted for each one 
that is cut. 

The national timber reserves of the United States now 
include about 50,000,000 acres, and a corps of experts, under 
the direction of the Bureau of Forestry in Washington, 
inspects the forests, checks forest fires, and prevents the 



92 TEXT-BOOK OF ECONOMICS 

cutting of timber except under regulations prescribed by 
the government. 

The development of the country demands imperatively 
that stringent regulations be made and enforced to preserve 
the forests. Perhaps there is no one natural resource which 
is of such general importance to the country and which is in 
such imminent danger of destruction as the forests. Stale 
action has proved next to useless as a method of preserving 
them and the only alternative is interference by the federal 
power. 

Agriculture, lumbering, and inland transportation interests 
are all involved. They will all be benefited by the preserva- 
tion of the forests, and it is to be hoped that, at no distant 
date, the United States will adopt a forest policy comparable 
with those of the more advanced European states. 

TOPICS FOR CLASS DISCUSSION 

1. Explain the importance of the forest as a natural resource. 

2. What is the relation between deforestation and floods? 

3. What is scientific forestry? 

4. Explain the German forestry service. 

5. What could scientific forestry do for the United States? 

6. What steps have thus far been taken? 

7. What justification can be advanced for the government forest 
reserve ? 

8. Outline the economic advantages of preserving the forests. 



CHAPTER XI 



WATER POWER 



One of the things which the early colonists found in com- 
parative abundance was water power. All through New 
England and certain parts of the South there were number- 
less streams which had a high gradient and from which con- 
siderable amounts of water power could be developed. 
Therefore, when manufacturing was begun in the colonies, 
the power used was naturally water power ; first, because it 
was so abundant, and second, because it was the only power, 
except wind power, then available. 

The application of steam to industry, the discovery of coal, 
and the development of steam-propelled machinery, which 
began about 1800, completely revolutionized the source of 
the power utilized in American industries. When the great 
coal beds were discovered, there was an immediate rush to 
exploit them; and during the nineteenth century the United 
States occupied itself in mining coal as fast as it could be 
used in industry. Toward the end of the century, however, a 
change occurred which very materially altered the situation. 
Coal, particularly anthracite coal, rose in price to figures 
which became prohibitive in certain industries. The situa- 
tion was also aggravated by labor troubles which rendered 
the coal supply at times uncertain, and in addition to this, 
experts declared that the coal in sight would be exhausted 
in from forty to one hundred years. Much of this supply 
consisted of lignite, — a very inferior fuel. 

In consequence of this situation, men began to turn their 
attention to other sources of power. In the West they tried 

93 



94 TEXT-BOOK OF ECONOMICS 

to harness the sun, and several inventors attempted to secure 
power from the tides ; but the only really significant change 
that was made was the change to the use of water power 
developed by streams. In 1870, 1,130,000 horse power, or 
48.2 per cent of the power in use in the United States, was 
water power. By 1900 the number of horse power had in- 
creased to 1,727,258, but this formed only 15.3 per cent of the 
total horse power in use in the United States, so that during 
this period of thirty years, while the actual amount of horse 
power developed from water increased about 60 per c^it,' 
the relative amount when compared with the total power used 
in the United States fell to one third of the figure for 1870. 

These figures are in a way misleading, because they do 
not include under "water power*' the water power turned into 
electricity and then used to drive machinery, this last power 
being classed under electric power in the Census Report. 
But it is around this point that the whole discussion centers,' 
for with the increased price and constantly decreasing supply' 
of coal, the demands of industry could be met by water power^ 
only in case some intermediate force was introduced. 

The old water wheel was set down directly on the stream, 
a race constructed, and the wheel, turned by the water from'^ 
the race, was connected by belts and shafts to the machinery 
in the mill. Under the new system, electric turbines a,re^ 
installed at the stream and the water power is turned into 
electricity and transported over wires as far as 250 miles. 

The possibility of developing electric power from water 
power has opened up a great avenue for American industry, 
and has obviated the necessity of depending upon a decreasing 
supply of coal for the carrying forward of industrial enter- 
prises. 

The largest individual increases in water power have come 
in the states which have developed the wood pulp industry. 
In New York the water horse power utilized for wood pulp 
business was 65,000 in 1890 and 191,000 in 1900. The 
increase in Maine in the wood pulp industry was from 



WATER POWER 



95 



20yQQQ in 1890 to 75,000 in 1900. Increases are also shown 
in-New Hanipshire, Massachusetts, Arizona, and North 
Carolina. 

The development of water power around which the greatest 
interest at present centers is that of the Niagara Falls. Thus 
far, the New York Legislature has given franchises for the 
development of only a small portion of the power of which 
the Falls are capable, but a vigorous, protest is being made 
against utilizing a source of such great beauty for the purposes 
of industry. 

The power plant below the Falls on the American side is 
located in the Gorge, and the water for its use is drawn from 
the upper, Niaga.ra River, run through the city of Niagara 
Falls, and discharged near the first Suspension Bridge. 
This plant obtains a fall of water of 215 feet. However, 
it has certain obvious disadvantages. First, its buildings 
disfigure the Gorge; and second, the plant is difficult to run, 
as it is in a comparatively inaccessible place. 

The power .plant above the Falls is a rather novel one. 
To construct it a pit 150 feet deep was dug in the solid rock, 
and at the bottom of this pit were placed the turbines. The 
wat^r was conveyed down the opening to the turbines through 
steel tubes, and the motion generated in the turbines was 
returned to the electric generators at the surface by means of 
steel shafts. The water is secured by a canal, 250 feet wide, 
1700 feet long, and 1 2 feet deep, which carries enough water 
to generate 100,000 horse power. 

The last company described supplies a considerable amount 
of electric power to Buffalo. The Buffalo street railway 
is operated by means of this power, bake shops are run, street 
and house lighting is, supplied, grain elevators are- operated, 
and factory power is provided. In short, the power thus de- 
veloped can be utilized for all of the processes of industry 
and at a cost considerably below the cost of steam power. 
; While this is the most notable instance in the country of 
the development of water power, the Pacific coast presents 



96 TEXT-BOOK OF ECONOMICS 

some striking contrasts. The important thing about the 
Niagara Falls is the volume of its water. On the Pacific 
coast there are no bodies of water so large, but the fall 
which is secured is very great. For example, a part of the 
electric power used at San Francisco is supplied from a plant 
located at the foot of a hill 500 feet high, down which the 
water for the generation of the electricity is carried in steel 
tubes. The velocity of the water when it reaches the power 
plant is stated as 14,000 feet per minute. After the power 
has been generated in this plant, it is carried 150 miles to 
San Francisco at a pressure of from 40,000 to 80,000 volts, 
with a loss of about one fourth of the power. 

From what has been said, it will readily be seen that the 
two problems which present themselves in the development 
of water power are, first, the securing of sufficient power, and 
second, the transmission of the power over sufficient distances 
to support all of the industries which may require it. 

As to the first problem, it is unquestioned that there is 
sufficient water power in the country to supply all of our in- 
dustries, and all of those that will be developed for a long 
time to come. The total horse power employed in manu- 
facturing in 1900 was 11,300,000. To supply this demand, 
it is stated that Niagara Falls is capable of developing between 
six and seven million horse power, and Niagara is only one 
of the many falls in the country. The falls at Sault Ste. 
Marie (between Lake Huron and Lake Superior) have a 
drop of only twenty feet, and yet the volume of water is so 
enormous as to make possible the development of a great 
amount of power. On the Pacific coast, as has been pointed 
out, there are a number of streams which, while not pro- 
viding a great volume of water, do provide a great fall. 
Those who propose regulating the flow of the Mississippi by 
the construction of reservoirs at its head waters, estimate that 
from these reservoirs, about 50,000,000 horse power could 
be developed. If to these large possibilities is added the 
water power which is provided by the innumerable small 



WATER POWER 97. 

rivers along the Atlantic coast, it is unquestioned that' the 
power of the country can be supplied through electricity 
developed from water, provided that the electricity can be 
carried for a sufficient distance. 

The real impetus to the modern use of water power was 
given in the last decade of the nineteenth century, when it was 
found that electricity could be cheaply developed and carried 
for great distances for commercial uses. Before that time 
water power was abandoned or left unutilized because it 
was often inconvenient or impossible to locate a plant directly 
on the water way, and this was necessary until electricity 
was introduced. 

The use of electricity presents certain marked advantages 
over steam and shaft driven machinery. These advantages 
are summed up by prominent engineers somewhat as 
follows : — 

1. Economy in the amount of power used. 

2. Lighter buildings will hold electric machinery than those 

necessary to hold steam machinery. 

3. A reduction in expenses of service, such as oiling. 

4. A more efficient arrangement of machines. They need 

no longer be placed in straight lines to correspond with 
the lines of shafting. 

5. Doing away with belts and pulleys makes access to the 

machines easier, and obviates many accidents. 

6. The removing of belts also does away with much of the 

dust and dirt. 

7. It is much easier to increase the units of machinery in 

use in a shop ; instead of having to run a new line of 
shafting, it is only necessary to run a set of electric 
wires and set up a motor. 

8. The speed of tools can be more readily controlled. 

9. The product can be more readily increased. 

The development of water power, as has been shown, is 
peculiar. In the early days, it was the only power relied upon 



98 TEXT-BOOK OF ECONOMICS 

for industry. It was then supplanted by coal, but when in 
the last part of the nineteenth century coal became more expen- 
sive and the supply materially decreased, industries began to 
utilize water power again, principally because it could be 
advantageously employed through the medium of electricity. 
The development and use of water power in industry 
forms one of the basic problems in the business organization 
of the country. The successful exploitation of the available 
water power of the country will mean decreased costs of manu- 
facturing, — hence a decreased cost of finished products. 
Thus water power development means advantage to the 
community at large as well as to the manufacturer. 

TOPICS FOR CLASS DISCUSSION 

1. Why was water power used extensively by the early colonists? 

2. What led manufacturers to replace water power by steam? 

3. What is there in the present development that shows a tendency 
toward the increased use of water power? 

4. What advantages has the use of modern water power over modern 
steam power? 

5. What advantages has steam power over water? 

6. In what respect does a reversion to water power show progress? 

7. What steps must be taken to secure the most economic use of 
water power? 



CHAPTER Xn 

INLAND COMMERCE 

The subject of water transportation was one of chief 
importance at the Conference on the Conservation of Natural 
Resources recently held in Washington at the invitation of the 
President. The cause for the increasing concern for the 
utilization of our waterways lies largely in two facts : first, 
the internal commerce of the country has been growing so 
rapidly, and the demands for transportation facilities have 
l?een expanding so swiftly, that the railroads of the country 
in ordinary times are unable properly to handle the traffic 
of the country J secondly, any considerable future reductions 
in the cost of rail transportation are improbable. There is 
a social economy to be gained in using the railroads of the 
country in reference to handling commodities expeditiously 
and in small units, and in employing water transportation 
for much of the bulkier products of our farms, mines, and 
forests. 

Considering the great importance of water transportation 
facilities at present, and of their probably still greater im- 
portance in the future, it is of interest to note just what are 
natural resources in this line. One of the last and best 
statements on this subject comes from the pen of Professor 
Emory R. Johnson : — 

"The inland waterways of the United States comprise 
about 25,000 miles of navigated rivers, a nearly equal mileage 
of streams that can be made navigable by the improvement 
of their channels and the regulation of the flow of their 
waters, the five Great Lakes with a combined length of 

99 



lOO TEXT-BOOK OF ECONOMICS 

1410 miles, and 2120 miles of operated canals. In addition 
to these rivers, lakes, and canals there are 2500 miles of 
sounds, bays, and bayous, capable of being converted by 
means of connecting canals, aggregating less than 1000 miles 
in length, into a continuous and safe inner route for the coast- 
wise traffic of the Atlantic and Gulf. The waterways in our 
country — rivers, canals, lakes, and coastal channels — have 
an aggregate length of between 55,000 and 60,000 miles, and 
only about half of the entire mileage is now used for navi- 
gation." 

America has been particularly blessed with two inland 
waterways which are without rivals in the world, viz. the 
Great Lakes and the Mississippi systems. In 1906 the traffic 
on the former was seventy-five million tons, — three times 
what it was in 1890. The Mississippi system has failed to 
reach anything like this degree of usefulness, much less of its 
possible utility. Although the government has been spend- 
ing comparatively large sums on both these systems, they have 
been far from adequate. As Professor Johnson pointed out 
at the conference in Washington : — 

"When we consider that the United States has spent during 
the past hundred years in regulating, improving, and extend- 
ing our system of natural waterways only 4j per cent of the 
amount private capitalists have invested in the construction 
of railways, our Congressional appropriations for the better- 
ment of inland navigation seem to have been conservatively 
small." 

Perhaps the relative value of the American waterways can 
be shown in no better way than by noting the volume of 
traffic carried on each of our waterway systems. This will 
afford a basis for judgment as to the relative importance of 
the various parts of the whole system. In 1906 there were 
75,610,690 tons of freight shipped on the Great Lakes (42.6 
per cent of the total freight, exclusive of harbor traffic, 
handled upon American waterways, coastwise and inland). 
For the same year the traffic of the Mississippi River and 



INLAND COMMERCE lOI 

its tributaries was 19,531,093 tons (11 per cent of total); 
of the other inland waterways, 3,716,765 tons (2.1 per cent of 
total). The combined traffic on all our inland waterways 
including the Great Lakes in 1906 was 98,858,548 tons, which 
was 55.7 per cent of the total water-borne domestic com- 
merce of the United States. 

The development of inland water transportation in the 
United States is strikingly similar to the development of the 
use of water power. The early colonists depended upon 
water transportation as they did upon water power, because 
of its abundance and also because there was no other practi- 
cable means of getting from place to place. The few roads 
that existed were wretched ones, and the streams became the 
highways for travel and trade. Settlements were made 
either on the coast or on streams. Both supplied fish and 
a ready means of getting men and things from one place to 
another, and many of the streams furnished water power. 

The application of steam to industry led to the gradual 
abandonment of both water power and water transportation. 
In both cases, however, the point has now been reached when 
steam power will no longer suffice ; and in order to maintain 
the highest efficiency of the country, it has become necessary 
to fall back upon natural power, improved and developed 
through the advanced mechanical means which are included 
in business organization. 

In both cases the diminution of the coal supply has played 
a leading part, but in the case of transportation there is a 
factor of even greater importance. There is no question 
but that the railroad growth has failed to keep pace with the 
traffic growth and this failure has made the return to water 
transportation inevitable. In 1870 there were 52,000 miles 
of track in the United States; and in 1906, the estimated 
amount was 220,000 miles, but the increase was made largely 
between 1870 and 1900. Since then the increase in trackage 
has been small. From 1870 to 1900 the annual increase in 
the track mileage was slightly over 7 per cent. From 1900 



I02 TEXT-BOOK OF ECONOMICS 

to 1904, the increase was 2.19 per cent, while from 1904 to 
1906 the annual increase was 1.45 per cent, or about one fifth 
the annual increase between 1870 and 1900. 

But this cessation in the building of trackage is not an 
indication that business has likewise decreased. On the con- 
trary, business has increased on a scale never before known. 
In 1895 the amount of traffic per mile of track was, passengers, 
12,000,000, and freight, 85,000,000 tons. In 1900 the amount 
of trafhc per mile of track was, passengers, 23,000,000, or 
twice the number for 1895, while the amount of freight was 
186,000,000 tons, or more than twice, the amount for 1895. 

During this same period of ten years, the total trackage 
increased but 21 per cent, or one fifth the increase of passenger 
mileage and freight mileage. At the same time the number 
of locomotives in use increased 35 per cent; the number of 
passenger cars, 23 per cent ; and the number of freight cars, 
45 per cent. In view of these figures, it is small wonder that 
year after year cotton, corn, and wheat were burned or left on 
the ground to rot because of the lack of railway facilities. 

The opening of the Panama Canal and the development 
of trade with South America makes the Gulf the natural out- 
let for a great amount of the produce of the Mississippi 
Basin. If to this fact is added the ease with which heavy 
freight can be shipped by water, it is plain that the logical 
outcome of the present situation will be a return to inland 
water routes for a great portion of the Mississippi Basin's 
heavier products. 

Some idea of the relative costs of shipping by rail and by 
water may be gained from the statement that in 1905 
44,000,000 tons of commerce passed through the locks of the 
Sault Ste. Marie Canal between Lake Superior and Lake 
Huron. This tonnage was carried for an average rate of 
.85 of a mill per ton per mile. The average freight charge 
per ton per mile on the railroads of the United States during 
1905 was 7.6 mills, or about nine times as great as the water 
rate for the Great Lakes. 



INLAND COMMERCE I03 

The same idea is brought out by a contrast between two 
Pittsburg rates. Between Pittsburg and Lake Erie there is 
a coffitaerce amounting annually to about 30,000,000 tons, 
composed chiefly of iron ore and coal. The ore is carried 
by boat from Duluth on Lake Superior to Ashtabula on Lake 
Erie, a distance of 1,000 miles, for about 80 cents per ton. 
The ore is then loaded on cars and carried to Pittsburg, a 
distance of 135 miles, for 90 cents per ton, so that it costs 
10 cents more to ship a ton 135 miles by rail than it does a 
thousand miles by water. 

The coal which is carried from Pittsburg to thesie Erie ports 
at 90 cents per ton is loaded on boats and shipped to Duluth 
for 35 cents per ton, or one twentieth of the per mile rail rate. 

■The conclusion is obvious that some plan which would per- 
mit heavy freight to go from Chicago to New Orleans through 
a reliable channel would enormously decrease the cost of 
getting products to market, and would thus increase the pos- 
sibility of marketing products from the Middle West. 

The whole problem then centers about the improvement 
of the Mississippi. The Mississippi River is a river of bad 
habits, and the worst of these are the cutting of its banks, 
the formation of sand bars in the channel, and floods. 

The cutting of the banks is due to curves, technically called 
"meanders," the river digging under the bank on the outside 
of a curve, particularly during flood times. Sometimes this 
cutting amounts to 100 or 150 feet a year. As the channel 
is necessarily on the outside of the curve, and as grain ele- 
vators, docks, and other means for facilitating traffic must be 
reached by means of this channel, it is obviously impossible 
to carry on commerce satisfactorily if the river is undercutting 
the docks and elevators at the rate of 100 feet a year. 

This cutting of the banks does not, of course, interfere with 
the through traffic as seriously as with local traffic. The great 
trouble to both is the formation of sand bars, sometimes over 
night, and the shifting of the bars from one part of the channel 
to another. 



104 TEXT-BOOK OF ECONOMICS 

It is estimated that the Mississippi carries 400,000,000 tons 
of silt to the Gulf every year. This material comes in largely 
from the Missouri River and is the result of floods at the head 
w^aters. During 1906 the damage in the Ohio Valley alone 
through floods was estimated at $100,000,000. In 25 years 
the "big floods" have cost the Mississippi Valley 
$200,000,000. A control of the floods of the Mississippi 
would decrease bank cutting and the formation of sand bars, 
and would eliminate flood damage, which has become a very 
serious item. 

The river can never be successfully prevented from cutting 
its banks until it is straightened. This may sound like a wild 
suggestion, but several of the German rivers which were 
particular offenders in this respect have been straightened, 
and in the process the rivers were made narrower, thus 
giving a higher gradient and a more rapid flow. A straight 
river with narrower banks means a shorter distance to travel ; 
a greater fall per mile (because the river goes an air line dis- 
tance of 100 miles in 100 miles, while with its meanders 
it flows 200 miles in going an air line distance of 100 miles) ; 
and therefore a more rapid flow, carrying away more of the 
silt from the river bed. 

Along with this straightening of the river will come other 
improvements to control floods, thus eliminating flood dam- 
age and preventing, to a large extent, the formation of sand 
bars in the river. Many schemes have been suggested for the 
prevention of floods. 

In discussing the question of forestry, floods were shown 
to be due in great part to the deforestation of the mountainous 
country at the head waters. This is the case with the Missis- 
sippi. Great areas of land at the head waters of its tributaries 
have been practically deforested, leaving the water in rainy 
seasons to rush off from the soil into the streams and cause 
flood damage farther down. As a method of checking these 
floods, forests must be placed on the tops of all of the avail- 
able hills at the head waters of the various tributaries. The 



INLAND COMMERCE 105 

work can further be facilitated by the building of storage 
dams which will check the floods and allow the surplus water 
to flow gradually down through the lower courses of the river. 

The straightening of the Mississippi, the reforesting of the 
hills at its head waters, and the building of storage dams on 
its principal tributaries to control floods, may cost one hun- 
dred or two hundred or even three hundred million dollars ; 
but it has now become apparent that sooner or later this 
change will have to be made if the full possibilities of the 
Mississippi Basin are to be developed and its destructive 
tendencies checked. 

While the sums named may sound large, they would ulti- 
mately benefit the country, first, by a saving of flood damage 
which at present amounts to from $50,000,000 to $100,000,000 
a year ; second, by a saving in the present freight rates ; 
third, by providing against drought through the reforesting 
of portions of country that have been deforested; fourth, 
through the revenues ultimately derived from the forests 
thus created; fifth, through the water power which might 
readily be developed at the storage dams; and sixth, through 
the great impetus which would be given to industry and com- 
merce in the Mississippi Basin by the completion of such a 
work. 

The possibilities of increasing the productive power of 
the country through this series of improvements are apparent. 
It only remains for the country as a whole to insist on having 
the improvements made and thus to take a step of inestimable 
importance in the development of business organization. 

TOPICS FOR CLASS DISCUSSION 

1. How important were inland water ways before 1830? 

2. Contrast the relative merits of the railroad and the inland water- 
way. 

3. Why are the people of the United States laying new emphasis on 
inland water transportation? 

4. Name the leading inland waterway systems of the United States. 



Io6 TEXT-BOOK OF ECONOMICS 

5. What sections would profit most by the opening of the Mississippi 
system ? 

6. What would be the eflfect on the Eastern cities of a series of improve- 
ments in the Mississippi Valley? 

7. What effect will the Panama Canal have on New York City? 
On New Orleans? 

8. What effect will the Panama Canal have on the Mississippi as 
an inland waterway? 

9. Does a reversion to waterways show progress? 

10. Did a change from waterway to railway show progress? 

11. What is the justification of governmental improvement of water- 
ways? 



BOOK IV 

CHAPTER XIII 

INTRODUCTION 

Labor is one of the two essential elements that enter 
into the productive operations of a modern industrial society, 
especially when that society is organized in the form of a large 
town or a city. The thing that impresses a countryman who 
comes for the first time to a large city is the fact that nothing 
he sees or uses, with the exception of the sky and the air, has 
come into existence without the effort of labor. In the 
country district from which he came, nature supplied the 
trees, the grass, the flowers, the productive soil, the springs, 
the waterways, the sky, and the clean air. Man had no part 
in bringing any one of these things into existence. 

In the city, on the contrary, all of nature's functions have 
been supplemented. To be sure, there are trees and flowers, 
but they are the result of human labor, for they have all been 
set out in stiff, conventional rows and figures. The grass, 
if he find any, he may not tread upon, for it has been planted 
and cared for by labor and its value is shown by many signs, 
" Keep off the grass." Where these signs are not in evi- 
dence, grass plots are nothing but hard, baked dirt, there 
being so many children per blade that the grass has not one 
chance in a thousand to live through the struggle. 

Instead of the soil to which he is accustomed, he walks 
upon streets paved at a cost of two dollars a square yard, 
the sidewalks of which are of stone or cement brought at 
great cost from some distant place, where it was produced 
by a great expenditure of labor. 

The water is neither as clean nor as good as he finds it 

107 



Io8 TEXT-BOOK OF ECONOMICS 

in the country. It has been pumped into a reservoir or run 
through an aqueduct or through pipes in order to bring it to 
the people of the city. Like all the other things, it repre- 
sents labor. He cannot secure fruit or vegetables as he can 
at home, by picking them in his garden. They have been 
transported by a vast aggregation of labor and capital, — 
the railroad. 

Even the sky and air are not wholly as he sees them in the 
country, for the sky is blackened in every direction by the 
smoke of factories which are human beehives of industry, 
and the air is loaded with dust and dirt, stirred up by the 
rushing city life. The houses are not natural enough to be 
made of wood, but are of brick or some other manufactured 
product, which is produced by one group of laborers and 
then put together in the form of a house by another group of 
laborers. 

In short, the man who comes to the modern city and looks 
at it from the standpoint of the economist, will find that 
natural things are at a premium, for labor has entered into 
the production of everything material, within the range of 
vision. 

While labor has thus been essential in the making of every 
object that surrounds city life, it is not confined to the 
city by any means. The man plowing his ten-acre lot, 
the plow that he uses, his house and barn, his macadamized 
road, his asparagus bed and peach orchard, — all these repre- 
sent an outlay in labor. 

One of the most interesting things about our labor to-day 
is its cooperation in producing goods. The chair upon 
which you sit is the direct or indirect result of the labor of 
hundreds of thousands of men, women, and children. It 
was cut as standing timber in the woods of Michigan, with 
axes and saws that had been made in New England facto- 
ries. It was hauled to a sawmill on bob sleds, the bolts of 
which were manufactured in Philadelphia and the steel 
runners in Pittsburg. It was sawed by a band saw repre- 



INTRODUCTION. lOQ 

senting the result of a long series of inventions, the final 
outcome of many years of labor, produced in a great factory, 
splendidly organized and employing 5000 men. 

Then this sawed lumber was shipped to a furniture mill 
over a railroad employing 20,000 men, drawn by an engine 
manufactured in a distant city by a firm employing 30,000 
men, propelled by steam generated from coal mined in West 
Virginia by a mining company employing 1000 men, in cars 
manufactured in St. Louis by a company employing 7000 
men. When it reached the furniture factory, the lumber 
went through a great number of processes until it was con- 
verted into a chair, and each tool in each process was manu- 
factured in a different city in a different part of the country 
by a different set of employees, and the tools which helped 
to make these tools and the tools which helped to make 
them, and the tools which came before this second group, 
assisted in the work. The finished chair was shipped on a 
great railway system to your city, where it was handled by a 
trucking company who delivered it to the wholesale house, 
who in turn sold it to the retail house, from which it was 
delivered to you. And the clothing worn by the woodsmen 
in Michigan and the ax makers in New England, and the 
furniture makers and the railway employees and the miners 
and all of the others who entered into the production of the 
chair, was made in New York City of cloth prepared in 
New England from wool sheared in Texas, with thread 
which was made in Paterson, and finished with buttons made 
in New Haven. And the machinery which sheared the 
sheep, shipped and carried the wool, made the cloth, thread, 
and buttons, and sewed the clothes, was manufactured by 
still another group of people scattered throughout the world. 

From these illustrations it will be seen that modern life 
is essentially artificial, and in producing this artificiality, 
labor constantly plays a leading part. 

In its importance to modern production, labor is secondary 
only to land. Without these two factors, production would 



no TEXT-BOOK OF ECONOMICS 

not be possible. Labor supplies the place to land that 
mortar does to bricks; it brings the natural resources to- 
gether into a permanent structure. Without labor, land 
could not be used to satisfy human needs. 

If, then, labor be so important in the developments of 
industry which result in prosperity, we should have a care 
about the condition of this labor, about its well being, about 
its productiveness and its advancement. If the labor forces 
in the community help so vitally in the creation of pros- 
perity, the labor forces should demand constant and careful 
attention. j:;.rom :. '^ .- 

As a nation we should look upon our labor force as the 
manufacturer looks upon his machines. It is a great aggre- 
gation of productive units, and if one unit be removed by 
sickness or accident, as a community we will have less to 
consume and enjoy. In reality the modern nation is a big busi- 
ness enterprise. If it is carefully conducted, if the natural re- 
sources of the country are cared for and not squandered, if 
the labor force is developed and perfected in organization 
and not injured or allowed to deteriorate, and if the capital 
of the country is well organized and administered, we shall 
have a highly productive nation. Of course, the converse 
of all these things is also true. 

In Economics, when we speak of labor, we do not mean 
manual labor, but all the effort either mental or physical 
which is expended in producing economic utilities. The 
man who works with a pick and shovel is a laborer; so is 
the woman who works for wages with a needle ; so is the man 
who works with the pen; so is the man who works with a 
brush; so is the man who spends his time in directing the 
energies of others in order that they may assist in production. 
All of these men are "laborers" in the economic sense, be- 
cause, economically, the laborer is the man who expends 
physical or mental effort in the creation of economic utilities. 

In any discussion it is desirable, in order to secure clear- 
ness, to classify the subject under discussion as broadly as 



INTRODUCTION III 

possible. We may, therefore, classify labor under three 
general heads : — 

1. The man whose income is dependent upon the income 
of the business; that is, the owner, the organizer, who takes 
the risks incident to business ownership and receives what is 
known in Economics as profits. 

2. Those who work as salaried managers, who direct 
without having the responsibilities of the business. 

3. Those who work primarily for wages, either by the day, 
week, or month. 

Upon these three groups in varying measure falls the 
burden of supplying the labor element in production, and 
the economic importance which is attached to each of them 
will be discussed in another chapter. 

TOPICS FOR CLASS DISCUSSION 

I. To what extent is labor essential in production? - 

'2; "Has* society gained or lost from the increased artificiality of mod- 
iern'life? / ■ ' 

3. What is the relation between the amount of labor expended on 
an article and its selling price? 

4. Should labor be the sole element in determining the cost of an 
article? 

5. Has labor become more or less important with the develop- 
riient of machinery ? ' 



CHAPTER XIV 

THE MODERN LABOR FORCE 

Having outlined briefly an idea of the meaning of the 
labor force, it is next necessary to obtain some impression of 
the way in which the modern labor force has been developed. 

It is clear that American labor is wholly of foreign origin. 
We have never been able to persuade the American Indian 
to work, therefore the entire responsibility for the construction 
of the American industrial system, as far as labor is respon- 
sible for its construction, rests upon those who came to Amer- 
ica from Europe, Asia, and Africa. 

It will facilitate our attempts to understand the developr 
ment of the American labor force if we go back to the colonial 
period and consider the character of the people who made up 
the colonial labor. In the New England colonies, which 
were settled largely by people from the British Isles, we find 
a Puritan element predominating, with its stern ideas of living 
and an abhorrence of pleasure and all kinds of levity. This 
group of people came largely from the town populations of 
England, and they were in their homes across the water well 
educated, with strong religious motives, high moral standards, 
persistent in their efforts to accomplish any particular 
end, and adaptable. These elements combined in the popu- 
lation to form a strong and persistent type of man and woman 
well calculated to overcome the difficulties incident to a new 
environment. 

The best elements of the European population left Europe 
because of intolerance, on the part of the European govern- 
ments, of new concepts and ideas. These people were 



THE MODERN LABOR FORCE ,113 

forced to leave their homes and their old associations because 
their ideas of duty, of religion, and of morality would not con- 
form to the standard set by the government of England. 
They were therefore what we would call independent thinkers 
or individualists. 

If we consider the immigrants from England, and later on 
those from northwestern Europe, the population of New 
England as a whole consisted of Anglo-Saxons, whose home 
institutions and racial ideals were so nearly alike that there 
was no difficulty in welding them into a homogeneous mass. 
Each new element which arrived from Europe was readily 
assimilated and formed a component portion of this mass. 

In consequence of the intelligence, perseverance, individ- 
uality, and adaptability to new surroundings, the population 
of New England very readily conformed to the conditions 
prescribed by the New England geography and climate. 
They built ships because ship-building materials and harbors 
were abundant. They traded with the West Indies because 
the fish which they caught all along the coast formed a val- 
uable commodity when transported to the southern coun- 
tries. They carried on manufacturing because the numerous 
rivers supplied much valuable water power. In short, the 
New England population was built to measure up to the 
demands of the new surroundings, and to conquer them in 
a way beneficial to the population settling there. 

While the people who came to New York, Pennsylvania, 
New Jersey, and Delaware were of a somewhat different 
group, the basic elements of the population were the same. 
The Quakers of Pennsylvania, New Jersey, and Delaware 
came from England largely. They were the earliest settlers, 
but they were soon joined by large contingents of Germans, 
Swedes, and Scotch Irish, who settled on the land and devel- 
oped the agricultural resources of Pennsylvania and New 
Jersey and Delaware. 

In New York the Dutch were the first settlers, and under 
their Patroon system they turned chiefly to agriculture. 



114 TEXT-BOOK OF ECONOMICS 

They were soon reenforced by groups of English and German 
settlers. The general characteristics which prevailed in 
New England may be said to have prevailed in the Middle 
States during the colonial period. Many of the people 
who came to these colonies came because of religious intol- 
erance and political persecution at home. They were, there- 
fore, independent, thinking people, many of them skilled 
artisans. They came to America because they believed 
in a certain principle and were willing to sacrifice for it. If 
we add to these characteristics the fact that the people pos- 
sessed the same perseverance and adaptability for which the 
New England colonists have become justly famous, we have 
a reasonable picture of the conditions of the Middle States. 

The people of the New England Colonies and the Middle 
States developed industry rather than agriculture for two 
reasons — first, because their agricultural land was inferior in 
quality, and secondly, because the opportunities for develop- 
ing industry were so abundant. Not only could ships be 
built, but fishing could be carried on profitably, and the colo- 
nists soon discovered that the deposits of iron could be 
worked, that hides could be manufactured into various 
products, that the textile industry was not only possible but 
lucrative, and that, in short, the country was peculiarly 
adapted to the development of a strong industrial system. 

If we go now to a discussion of the conditions in the South, 
we will find an entirely different set of facts. 

In the South there was the possibility for developing agri- 
culture. Tobacco, rice, indigo, and, later on, cotton could be 
grown with great profit in all portions of the Southern States. 
While the South possessed industrial resources, it did not 
develop them, because agriculture formed the path of least 
resistance along which the Southern colonists naturally 
acted. It was easier and more satisfactory to acquire a piece 
of land and secure immediate returns than it was to erect 
a factory with the possibility of selling the product at some 
future time. In the North the land was given to individuals 



THE MODERN LABOR FORCE II5 

for the asking, and it was theirs for all time. In the South, 
in order to maintain a profitable agricultural system, the land 
was laid out in large plantations. These plantations were 
worked by indentured servants and slaves. 

Slavery did not prevail in the North, not because the people 
did not want slavery, but because there was no economic 
wa;y in which the slave could be used. Slavery is possible 
only where a large number of men can be worked together 
under the charge of an overseer. In industry this is not 
possible, but it is possible in agriculture, and in consequence 
the South was able to use slaves in large gangs profitably. 
The: labor force of the North was therefore composed almost 
exclusively of people who were working for their own advance- 
ment. The labor of the South consisted of three classes, — 
the large landowners, the indentured servants, and the slaves. 
There were, of course, numbers of free whites, but in the 
early development of the South the three classes already 
mentioned played the leading part. 

In the North the forerunner of our modern industrial 
system developed. In the South there was no industrial 
development, but men turned their attention to the raising 
of agricultural products. 

Up to 1840 our immigrant population was drawn largely 
from northwestern Europe and from Africa. With the 
exception of the slaves, all of those who came to America 
were members of one of the Baltic stocks. They had all 
developed their ideas and ideals in the same general part of 
the world and along the same general lines. In the North 
they were therefore easily assimilated and developed into 
a homogeneous industrial and social group. On the other 
hand, the presence of a foreign body of people in the South 
who could not assimilate with the whites, made the develop- 
ment of a homogeneous group impossible. 
. Between 1840 and 1850 the food shortage in Ireland sent 
millions of immigra,nts to the United States. Between .1S70 
ahd 1880 the political and economic disturbances in Ger- 



Il6 TEXT-BOOK OF ECONOMICS 

many were responsible for the flow of millions of people to 
the United States. By i860 the negroes had stopped coming 
in, but they already formed a great mass of the Southern 
population with which the North was still struggling. 

Up to this time, then, northwestern Europe was respon- 
sible for furnishing the largest portion of the immigration 
of the United States. Since 1880, however, there has been 
a change, and the source of immigration has been gradually 
shifted from northwestern Europe to southeastern Europe. 
Besides this European shift, a large number of French Cana- 
dians have come into New England, while to the Central 
States have come Slavs and Itahans. The Baltic countries of 
Europe furnished our early immigration. Later immigrants 
who have come to this country are of Alpine or Mediterranean 
origin. That is, they are less familiar with Anglo-Saxon 
institutions and less sympathetic with Anglo-Saxon ideals. 

In 1900 there were, roughly speaking, thirty million wage 
earners in the United States. Of this number, six millions 
were born abroad, while five millions were born in this country, 
of foreign parents. A large portion of our labor force is, 
even at the present day, made up not of Americans but of 
foreigners or the children of foreigners. The problem which 
we are confronting, if we are to maintain the efficiency of 
labor, is to instill into this labor population the capacity for 
work, the power of application, the intelligence, energy, 
perseverance, and adaptability in developing the natural 
resources of the country which characterized the early 
settlers. It is probable that all of these qualities can be 
developed to a greater or less extent in the immigrant popu- 
lation. It is impossible to assimilate the incoming immi- 
grants if these qualities are not developed, and the next few 
chapters will be devoted to the consideration of some of the 
things that are affecting the labor force and the development 
of these essential qualities. 



THE MODERN LABOR FORCE II7 

TOPICS FOR CLASS DISCUSSION 

1. Does the average street laborer work hard? 

2. Of the street laborers that you have observed, which race works 
hardest ? 

3. What environmental advantages have American laborers over 
laborers in Europe? 

4. Point out the most salient characteristics in the original labor 
force of the country. 

5. Can a distinction be made between the original labor force of the 
country and the group of immigrants at present coming to the country? 

6. Has the Anglo-Saxon race any peculiar economic character- 
istics? 

7. Upon what grounds do Anglo-Saxons base their claim to leader- 
ship? 

8. Is there any economic basis of "race superiority"? 

9. Will Greeks, Itahans, and Poles make good American citizens? 

10. What steps can the country take to Americanize immigrants? 

11. What traits do the immigrants possess that are not possessed by 
Americans ? 

12. Will immigration be of ultimate economic advantage to the 
United States? 



CHAPTER XV 

IMMIGRATION 

Immigration is a modern problem. It is only recently 
that people have been free to move from country to country 
at will. Even to-day, it is a difficult and expensive process 
for subjects to secure permission to leave some of the countries 
of Europe and Asia. 

These facts do not appeal strongly to Americans, because 
in the United States there is no restriction on movements 
from place to place; no officials interfere or question; and 
no passports are required. It is therefore difficult for us to 
think in terms of restriction on the liberty of immigration, 
yet such restrictions have always existed, and in some coun- 
tries still exist. The Russian peasant who wishes to come 
to America must resort either to bribery or fraud to escape 
the high cost of securing a permit to leave the domain of 
the Czar. 

The monarchs of the Old World wish to keep as many 
of their subjects as possible at home to insure the perma- 
nence of a large emergency army ; arid this necessity of mili- 
tary service is one of the great causes of emigration. 

While in America we ao not emphasize an increase in our 
military army, we do look continually for an increase in our 
industrial army. We depend upon it just as the European 
sovereign depends upon his military organization, and the 
incoming of a group of strong, willing workers makes a wel- 
come addition to the ranks of the American labor force. 

While it will be impossible to devote space to a history 
of the immigration problem, interesting as it is, it is well to 
remember some of its prominent features. In the first place, 

n8 



IMMIGRATION II9 

the colonists were immigrants in the same sense of the word 
that the present Italian and Russian Jewish peasants who come 
to America are immigrants. The best element of the early- 
colonists left the Old World because they could not secure 
there a reasonable toleration of their political or their reli- 
gious views. They were men who had the courage of their 
convictions to such an extent that they were willing to leave 
their mother country and make a new home in a new world. 
They were^ therefore, the elect from among the people in their 
own countries. They were the progressive people, the people 
who were willing to make changes, who were willing to go 
so far as to make a new home in order to inaugurate the 
changes in thought which they believed were right. 
r. A Study of our present immigrants shows, that they are in 
many cases coming to America for the same reason. This 
is particularly true of the Jewish race, which is seeking to 
escape the oppression of European governments. 

Until the last part of the nineteenth century, the immigrants 
to America had come from northern and western Europe. 
After the early colonists, the chief sources of immigration 
to the United States were Ireland, Scandinavia, and Germany. 
The world possesses, in our estimation, no more efficient 
and capable race of people than those living in northwestern 
Europe. Consequently, in securing them as citizens, we were 
securing the best people that the world had to give. In the 
last thirty years, however, a marked change has come over 
our immigration. The center of immigration to America 
has been gradually moving south and east. 

There are three great divisions of races recognized in 
Europe, — the Baltic or Northwestern races, the Alpine or 
central European races, and the Mediterranean races. From 
the Baltic races we have secured the Scandinavians, the 
Germans, the English, and allied groups; the central Euro- 
pean races furnish the Slavs and the Hungarians; while 
the Mediterranean countries give us the Italians, the Greeks, 
and the Syrians. , 



I.20 TEXT-BOOK OF ECONOMICS 

Beginning with the northern group, our immigrants have 
come successively from the British Isles, Germany, Scandi- 
navia, from Russia and Austria-Hungary, and from Italy, 
Greece, and Syria. With this change in the source of im- 
migration from the northwest to the southeast there has been 
a corresponding change in the character of the immigrants 
themselves. 

The Baltic races were more educated, more easily adapt- 
able to new surroundings, and in addition to these two 
valuable characteristics, furnished a large number of skilled 
artisans and mechanics. In contrast with them we have 
the Alpine and Mediterranean peoples, among whom illit- 
eracy is the rule rather than the exception, and who do 
the unskilled work of the country. From the Baltic races 
we secured the skilled wage worker to a large extent. From 
the Mediterranean races we are getting unskilled workers. 

The questions as to whether one race is more efficient 
industrially than another is a debatable one, and at present 
scientists are not agreed as to whether one race is ultimately 
more capable than another. Whether or not this be true, 
we know one thing regarding the character of our immigra- 
tion: the immigrants from northern Europe are, as a rule, 
more highly civilized, that is, better adapted to our standards 
than the immigrants from south Europe. The north 
Europeans are more easily taught our political and industrial 
methods than are the people from the southern and eastern 
countries, because it was in the northern and western parts 
of Europe that our presCi^it institutions were developed and 
partially perfected. 

On the other hand, there is a question as to whether the 
various groups of immigrants are not bringing to this country 
something which we have never had here before. For 
example, it is alleged that the Polish race is essentially 
musical and that its aesthetic standards are very high; it 
is well established that the Russian Jews are of a very high 
standard intellectually; and there is evidence to prove that 



IMMIGRATION 121 

the Italians are bringing to America artistic tastes in which 
the present inhabitants are largely lacking. 

If these various qualities, which have been more highly 
developed in some countries than in others, can be com- 
bined with the industrial efficiency of the American, the 
result will be a race of people more advanced than the world 
has ever before seen. 

Apart from the contribution which the immigrant him- 
self makes to our country, what is his effect upon the wage- 
working part of our population ? Leaving out of the question 
the children of the immigrants who enjoy the benefit of our 
public school system, and considering only the immigrant 
himself, it is clear from what has been said that he can have 
little or no effect upon anything except the semi-skilled and 
the unskilled labor force. He is almost never calculated 
to take a position as a skilled worker. Such a general 
statement is liable to many exceptions. Our most skillful 
tailors are now coming from Russia and Italy. Many 
Italian peasants make excellent stone cutters. Neverthe- 
less, speaking generally, the immigrant is classed as un- 
skilled labor. 

The Russian, Hungarian, or Italian immigrant comes 
from a country where the standard of living of the working 
population is very low. To him windows and doors are 
a luxury. In some places in Russia floors are likewise 
considered a boon. To many of the immigrants the tene- 
ment houses of our great cities are a paradise when con- 
trasted with the conditions in which they live in Europe. 
The immigrant will work for a very low wage because he is 
used to existing upon a small amount of food and with 
a small amount of clothing. Consequently, the presence 
of large numbers of immigrants in any community will 
result in a temporary lowering of the wage standard. At 
Phoenixville, Penna., in 1906, the wages of common labor 
were $1.08 per day, and this, as one Scotchman very sav- 
agely said, was "all due to them Hunkies," referring to 



122 TEXT-BOOK OF ECONOMICS 

the Hungarian population of the town. In many other 
localities the standard of the common labor wage has been 
kept low by the presence of the immigrants. As a result 
of such conditions, it is very rare in those localities to find 
American-born persons doing the common labor, for the 
reason that, accustomed to a high standard, they are unable 
to exist on such low wages. 

In the long run, however, it is very probable that the 
presence of the immigrant does not result in lowering the 
wage standard, because with a little education, or at least 
with the entrance of his children into the schools, he learns 
something of American customs and ways of living. As 
a result of this wider view of life, he is raised up from the 
old standard of Europe to the new standard of America 
and he adopts the American standard out of preference for 
its obvious advantages. 

TOPICS FOR CLASS DISCUSSION 

1. What effect has immigration on the unskilled labor wage? 

2. Why does the immigrant have less effect upon the skilled than on 
the unskilled labor wage? 

3. Would it be desirable to bar out all Chinese and Japanese im- 
migrants? 

4. Would it be desirable to exclude from the United States all persons 
of foreign birth except diplomats, merchants, travelers, and scholars? 

5. Account for the low standard on which the immigrant is willing 
to live. 

6. Point out the economic effects of immigration in the United States. 

7. Would the American Irbor force be more efficient without the 
immigrant ? 

8. How would heavy unskilled tasks be performed if the immigrant 
were excluded? 

9. What is the underlying reason for permitting immigration into 
the United States? 



CHAPTER XVI 

CITY LIFE 

One of the most interesting developments of our modern 
industrial civilization is the flow of population toward 
cities, and there are perhaps no influences in the community 
which have a more marked effect upon the character and 
ability of the laboring population than the problems arising 
out of city life. For generations the country boy has gone 
to the city to make his fortune. He leaves the farm be- 
cause it presents neither the excitement nor the means of 
securing a livelihood that is presented in the city. One in 
a thousand of these boys succeeds in making the fortune 
he sets out to find. That one example is held up; the 
nine hundred and ninety-nine are forgotten; and another 
thousand, and thousands of thousands flock to the cities 
to . participate in fortune making. 

Then there is another influence that has recently aided 
in the rapid development of the cities ; namely, the inflow 
of immigrants who, during the past few years, have been com- 
ing to America sometimes at the rate of a million a year. 
These immigrants of necessity go to the city, because the 
foreign steamships arrive only at large ports. Figures 
show that in 1900 there were in New York City 785,000 
persons of German descent, while the native population 
numbered but 737,000. There were also in New York 
710,000 Irish, an equivalent of the population of Dublin, 
two and a half times as many Jews as there are in Warsaw, 
and one half as many Italians as there are in Naples. In 
Chicago there are nearly as many Germans as in Dresden, 

123 



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TEXT-BOOK OF ECONOMICS 



one third as many Irish as in Belfast, and one half as many 
Scandinavians as in Stockholm. A newspaper writer finds 
in New York sixty-six languages spoken, forty-nine news- 
papers published in foreign languages, and one school at 
Mulberry Bend with children of twenty-nine nationalities. 

One fifth of our entire population lives in the thirty-nine 
cities of the United States which contain 100,000 population 
or over. These cities, with one fifth of the total population, 
contain two fifths of the population of foreign parentage ; 
and only one tenth of the native population born of native 
parents. In other words, there are in our large cities four 
times as many foreigners and three and a half times as many 
native born of foreign parents as there are native people 
of native parents. Thus we see that the cities of the country 
are the goal of a great number of immigrants as well as of 
the bright lad from the farm. 

These two forces, the movement from country to city 
and the influx of immigrants, when combined, build up our 
city populations at a tremendous rate. If you add to these 
the fact that many of our great industrial establishments 
are situated in large cities, it becomes apparent that the city 
life is inevitable under modern conditions and that it is 
becoming increasingly so. 

In the case both of the country boys who come to the 
city and of the immigrants who come from abroad, people 
are placed in a wholly new environment. Their surround- 
ings are unusual, and the problems which they have to face 
differ materially from the problems which they faced in the 
country districts of America or in the country or city districts 
of Europe. In other words, the movement to the cities 
necessitates a complete readjustment of ideas and habits. 
As was pointed out in the beginning of the discussion of 
labor, the city is essentially artificial, while the country 
is essentially natural. To use the current phrase, " God 
made the country, but man made the town." 

These people, placed in an unnatural environment, must 



CITY LIFE 125 

act in a different way from the way in which they have acted 
in their old environment. The country boy has thrown 
snowballs and baseballs at will. In the city his action 
is restricted. He may not throw upon the public high- 
ways, because there is danger of injuring some of the 
passengers. The farmer in the country may put his vege- 
tables on a wagon and peddle them in the neighboring town. 
In the city he may not peddle vegetables without securing 
a city license. In the country, if a man so desired, he might 
keep his pig and his chickens under the house or in his 
kitchen. These things are not allowed in the city because 
they are offensive to neighbors. In short, a man's liberty 
is restricted in the city by a great number of laws and 
regulations which had no existence in the country because 
they were not needed. 

Under the circumstances men are required to greatly 
restrict their accustomed activities, and in making this change 
from a natural to an unnatural environment, problems 
arise: the problem of the children; the problem of the 
tenement; and the problems of water, light, and trans- 
portation. 

In addition to the fact that city life is artificial, the second 
noticeable thing about it is the great distinction between the 
rich man and the poor man. In the country districts, incomes 
do not vary greatly. In the city, the divergence among 
them is exceedingly marked. The laborer on the street re- 
ceives $500 a year and lives in a tenement. The captain 
of industry or the insurance president receives $500 a day 
and lives in a palace. One man walks to his work or rides 
in a trolley car, the other goes in an automobile. One man 
is provided with the barest living, the other with all the 
luxuries purchasable in modern society. 

This distinction between incomes, which has grown so 
remarkably in the past few years, leads logically to a third 
distinction ; namely, the division of the population into social 
classes. In the country, the hired man ate at the table with 



126 TEXT-BOOK OF ECONOMICS 

the family. If there was a hired girl, she did likewise. In 
the city, the hired man may be either the gardener sent. by 
^ large employer of labor to attend to the lawn or he may 
be the chauffeur employed to run and clean the automobile. 
In neither case does the hired man come within sight of the 
dining room, much less does he eat with the family. In 
truth, the family would be shocked by the very thought. 
The hired man lives a life apart. He is a man whom the 
family will neither recognize nor associate with in any way. 
The hired man of the country is a man, while the hired man 
of the city is a servant. 

The distinction is brought out very clearly in the method 
of treating passers-by in the country and city. Every 
true countryman salutes every man whom he may pass^ upon 
the highway, and says, "Good morning," "Fine day," or 
uses some other expression of good will. In the city it is 
nothing unusual to find people who do not know the family 
living next door to them if they own a separate house, or 
the family liying above or below them if they rent rooms. 
In the country every one knows every one else's business; 
in the city the rule of the road is " Mind your own business." 

Then the average work of the city is deadening. There 
is very little in it to stimulate enthusiasm or interest. The 
work of the average city man is minutely subdivided and 
therefore monotonous. The various streets of the average 
city are exactly the same and therefore monotonous. Like- 
wise its houses are built in rows of the same texture and 
the same external appearance. Its days vary little, — when 
it rains there is no mud; snow is removed by the sweeper; 
and the spring thaw is unknown. In short, the whole city life 
is a round of sameness and a rushing whirlwind of existence 
which leads to no apparent result and leaves its victims 
prostrated and incapable of enjoying life. 

As has been already pointed out, city life is supplied from 
outside. City energy comes from rural districts or from 
immigration. Emerson has very justly said that were it 



CITY LIFE 



127 



not for the country, the city would have rotted out and ex- 
ploded long ago. City existence contains little which will 
revive and regenerate, as contrasted with the existence of 
the country. 

We cannot conclude from this, however, that the effect of 
city environment is wholly bad. Our suburbs and the de- 
velopment of suburban life are furnishing outlets for those 
of the city population who can afford high rents or the 
payment of high car fare. Even within the city, the effect 
of city environment differs materially, as the following table 
, will show : — 

STUDY IN CHICAGO, 1900 



Mortality . . . . . . . . . . 

Mortality under 5 years . . ' . ''. . 
Asked relief of charity society . . . 
Percentage of school children in ist 

grade .... . . . . . . . 

Percentage of school children in 8th 

grade .... . . . . . . . 

Saloons . . . . . . . ... . . 

Average rent . . . ... . . . 

Average income . . . . . . . 



Hyde Park 


Stock Yards 


10.65 per icoo 


14.21 per 1000 


25.7 per 1000 


38.7 per 1000 


106 


1726 


12.5 


17.9 - 


8-3 . 


3.6 


20 


500 


$25 


$10 ■ • 


$2500 


$500 



From this table it will be gathered that the very poor 
are the ones who suffer most acutely from city life. Among 
them mortality and rents are heaviest and school attendance 
and incomes lightest. They are the ones who feel the 
grind of its subdivided industry and the pinch of its poverty. 
The question very naturally arises, therefore, why do people 
congregate in the cities, and particularly these poor people ? 
Perhaps the best way to answer the question is to say that 
they congregate there in most cases because the city presents 
the best chances for work. Taking all things into considera- 
tion, the steadiest and best-paying employments are found 
in the cities. Cities grow because of some peculiar natural 



128 TEXT-BOOK OF ECONOMICS 

resources, such as the harbor of New York or the coal and 
iron mines and river transportation of Pittsburg. As has 
been stated, the development of our modern civilization 
will inevitably result in the development of cities, and the 
development of cities under present conditions means for 
the majority congested living. The movement to the sub- 
urbs is limited to the comparatively wealthy. The man 
who makes $2 a day or less — this includes the majority 
of the population — must stay in the city, particularly if 
his hours begin early and do not end until late in the day. 
This centralization of industry and the impossibility of 
living far from work results, as has been stated, in our tene- 
ment house problem and slum problem. And, in truth, 
the problem is a serious one. In New York there are squares 
containing 5000 people, or in the neighborhood of 1000 
per acre, and it is stated that in the one square mile of New 
York's East Side 200,000 people live. Obviously, con- 
ditions of this character do not tend to produce the highest 
type of humanity. 

The visitor to the East Side who sees children of two and 
three years of age standing on the fire escapes of the third 
and fourth story of a tenement house and playing with the 
iron bars, cannot help feeling that they are occupying a 
position very similar to that occupied by the caged birds. 
Their energies are restricted to a serious degree. The 
children who are old enough to be allowed out on the street 
play in the gutters or on the sidewalks, rolling under the feet 
of passengers and now and again under the feet of horses. 
In one evening on Avenue B, near Eighth St., in New York 
City the writer counted 375 children playing on the street in 
one square, and all of them appeared to be under fourteen 
years of age. 

These children do not come into contact with one natural 
thing. Their environment has been created by man. Were 
this environment created for the purpose of producing good 
children, the problem would be less serious, but the creation 



CITY LIFE 129 

of the environment was due to the desire to save money, and 
in the process of saving or making money the children suffer. 

Furthermore, modern industrial life in a city is very tense 
and nerve-racking. People hurry. It is most interesting for 
an outsider to go into Nevi^ York and watch men and women 
coming in to work in the morning. First, they run for the 
train or trolley near their home ; then they leave this vehicle 
and run for the ferry boat ; as the ferry boat nears the dock, 
every one crowds to the end, and the moment the gates are 
raised the whole mass of humanity runs for its cars; then, 
upon getting off the car at his destination, the passenger runs 
to his place of business, and all day his business life is a series 
of little runs, interspersed with short breathing spells. Such 
continuing of activity naturally results in a reaction, and this 
reaction expresses itself in the reading of exciting newspapers, 
visiting exciting theaters, and doing exciting things which 
lead into unwholesome surroundings, all of which tend to 
lower the moral tone of those who indulge in them. 

In a static society, like that of the country, where every 
one knows every one else's business, people are apt to avoid 
doing anything wrong for fear of the certain censure that 
would at once be meted out to them by all of the members of 
the group to which they belong. People going into a new 
environment, where they are unknown, do not hesitate to do 
things which would be unthought of in their home environ- 
ment because "nobody will ever find out." So the college 
man coming from a small town to a large city does things in 
the city which in his home town he would not dare to do. 

People coming from abroad or from the country districts 
into the city are released from all of the restraints which 
bound them in their former home. The city is described as 
"bad" morally, simply because people are acting unre- 
strained by any social customs or usages. That cities present 
business opportunities to ambitious men is unquestioned. 
That certain ambitious men take advantage of these op- 
portunities and rise high in our industrial society is proven 



130 



TEXT-BOOK OF ECONOMICS 



every day; but for the average man city life is a burden 
grievous to be borne. 

In this country we have not as yet noticed the effect of 
city Ufe on our city populations, because they have been 
shifting ones. This is particularly true of the immigrant 
who comes into New York City for a few months or a few 
years and then moves on to some other city or some smaller 
town. In London, on the other hand, the slum population 
has existed for several generations, and a type has been 
created, the Hooligan specter of England, for he can neither 
work nor serve in the army. He lives and eats and dies, 
all at the expense of the community. He obstructs the 
streets and begs or is cared for by the authorities, and his 
children follow in his footsteps. In short, if we allow our 
cities to develop unrestrained, they will be developed to the 
temporary benefit of industry and the ultimate detriment of 
humanity. The children will continue to play on the fire 
escapes and the people will continue to live in the tenements, 
without proper sanitation, without proper heat, without 
proper health regulations, all because we allow our progress 
in industry to interfere with a development that will lead to 
permanent industrial supremacy. 

Nevertheless, this kind of industry will not be found good 
in the long run, and the men who are worn out by life in the 
city and the children who have never known what natural 
life was, will not form the kind of citizens upon which the 
country can depend, either for its industrial supremacy or 
its supremacy in a military crisis. 

Granted that the city problem is a problem of vital im- 
portance to the country and that it is growing because the 
city has come to stay ; granted that the city is an economic 
necessity, — what can be done to make life in the city as 
beneficial as possible, as free as possible from the restraints 
which an unnatural environment puts upon it? 

Perhaps the first thing should be the providing of cheap 
transportation. As cities grow, it becomes more and more 



CITY LIFE 131 

difficult for people to live near their places of business. Not 
only does it become more difficult, but it becomes more un- 
necessary. We do not want our city population congested, 
and as cities grow, it is easier and cheaper to provide trans- 
portation because there are more people to assist in paying 
for an efficient transportation service. If fares are three 
cents instead of five, it means that a large group of people in 
the city will be able to move out into the suburbs and thus 
enjoy the benefit of country recreation together with the 
benefit of city work. This can be brought about only through 
the establishment of systems of cheap and efficient transpor- 
tation. The ideal of such transportation must be not profits 
to the company, but service to the community. As to whether 
this service can be better performed by a private corporation 
or the municipality, we shall discuss later on. One fact is 
clear, ^ it should be performed. 

In the second place, we can provide decent houses, sani- 
tary, with water facilities in all parts of the house, and sewer 
connections. It is not necessary in order to develop city life 
that the sewage of a tenement house be emptied into the 
cellar. This is merely an incident to city life which can be 
done away with through proper legislation and municipal 
inspection. Houses can always be kept clean by the same 
method. 

In the third place, we can keep the streets clean, and the 
air free from dust. There is nothing economical or common 
sense in sweeping up dust on the streets, allowing it to drift 
into the houses, sweeping it out of the houses, and again 
allowing it to drift back into the street. Dust on the street 
should be picked up, not swept up. The carpet sweeper 
and the compressed air method of cleaning have succeeded 
in picking up dust in the houses, and the problem of picking 
up dust in the street has already been solved abroad. It 
remains for us only to expend sufficient money in this country 
to accomplish it. 

In the fourth place;, we must provide water fit to drink and 



132 



TEXT-BOOK OF ECONOMICS 



use. Country people would not wash in the water which 
the people in some cities are compelled to drink. It is not 
generally realized what a burden a long-protracted case of 
typhoid fever throws upon the poor family. Even when the 
case is taken care of at the hospital, the removal of the wage 
earner for a month or more means that the family will be in 
want before the time expires unless their case is exceptional. 
Furthermore, it is expensive to have people sick. The sick 
man does not produce, but he does consume. In other words, 
he is taking out of the community commodities which he 
does not assist in replacing, and is therefore lowering the 
surplus of the community. From the standpoint of every- 
body, we cannot afford to have people sick. 

In the fifth place, people in the cities should be provided 
with cheap light and heat so that their cooking can be done 
reasonably and well and their expenditure for fuel may be 
reduced to a minimum. 

Here, then, we have the problem of the city population 
with its possibilities for happiness and its possibilities for 
misery, and it devolves upon society to decide whether the 
happiness or the misery shall predominate. If the hap- 
piness predominate, our city population will be an efficient one. 
If the misery predominate, the population will be inefficient. 

TOPICS FOR CLASS DISCUSSION 

1. Why has the city assumed a leading place in American life? 

2. What leads people from the country to the city? 

3. Why does the immigrant remain in the city? 

4. Is city life necessarily harmful to unskilled workers? 

5. What improvements could be made in your own city to make more 
desirable the lot of the average city dweller? 

6. Is the tendency of city life toward democracy? 

7. Should the movement toward the cities be encouraged? 

8. Is it true that the average man in the country is more vigorous 
mentally, physically, and morally than the average man in the city? 

9. Are our great men necessarily "country boys"? 

10. What will be the outcome of the movement toward the city? 



CHAPTER XVII 

THE SCHOOL , 

Those who progress sufficiently in their academic work 
to take a course in college usually do so for the purpose of 
making themselves more efficient producers, or, to state the 
matter differently, they take their course in college in order 
to increase their earning power. An increase in earning 
power means that the individual has learned to render a 
greater service to the community, to become more efficient. 
In taking a college course we recognize the fact that education 
is a great aid in increasing the producing power or efficiency 
of the labor force. As a result of college education, the 
average man goes out into the world of business and is a more 
effective worker than if he had started in the world of in- 
dustry directly from the high school. 

This idea of the value of education in industry is, however, 
a distinctly modern one. Although we boast of our public 
school system, there are many remote districts in the United 
States where it is difficult or impossible for children to secure 
school accommodations, and the growth in some cities has 
resulted in a half-time system, and in some cases in the ex- 
clusion of children from schools. 

The concept of a free education for all is a distinctly 
modern one. The free common school of the United States 
is not a century old, and in some European countries it has 
not been introduced at all. 

Up to i860 the educational system of the United States 
was not developed to any extent, and history abounds with 
the names of men who rose to high positions without the 

133 



134 



TEXT-BOOK OF ECONOMICS 



advantage of having secured a complete or even an elemen- 
tary common school education. Perhaps the best known 
example of this is Abraham Lincoln, who secured most of his 
education outside of the school. 

This type of man is now the exception — not the rule. 
Many businesses are run on a "college man basis"; that is, 
they employ men with a college training in preference to men 
who have not secured such a training. While this is now 
particularly true in the various departments of the engineer- 
ing profession, it is becoming more and more true in the 
world of general business. The i860 attitude that " ex- 
perience is the best teacher" has given place to a firm 
conviction that a good education is not a luxury, but a 
necessity to business success. 

Up to i860 the negro population of the South was denied 
an education because there was a general feeling that an 
educated slave population would be far more apt to revolt 
and would therefore be far more dangerous than an un- 
educated population. Since i860, however, the South has 
taken up the question of education, and has made greater 
strides in developing its educational system than any other 
section of the country, although the system is still behind the 
other sections in efficiency. 

Until recently the population of the South has been almost 
wholly agricultural, while the education has been of a scholas- 
tic nature. Many of the freed negroes, therefore, conceived 
the idea that if they could but learn Latin and Greek, they 
would be exempt from work during the remainder of their 
lives. 

The most successful attempt to develop an educational 
system that would meet the needs of the situation has been 
made by Booker T. Washington, in his school at Tuskegee. 
The essential portions of his curriculum do not center about 
Latin and Greek and History and Mathematics, but rather 
about agriculture and the useful crafts. He takes the negroes 
from the farms and cities where they have never learned any- 



THE SCHOOL 



135 



thing useful and teaches them to be good farmers, brick- 
layers, or carpenters. In addition, he holds conventions in 
the neighborhood of Tuskegee which are attended by large 
numbers of farmers, who are addressed by experts on ques- 
tions of scientific farming. In short, Booker T. Washington 
has made an attempt, and a successful one, to make the 
education fit the needs of the population. 

Our school system is, then, a development of the past half 
century, and we have not yet reached a point when we look to 
it for our industrial training. 

The change in education from a study of the classics to a 
study of practical forces has not been confined to Booker 
Washington's experiment. It has been a national move- 
ment. At one time men believed that colleges should teach 
only the classics. Gradually, however, the objects of col- 
lege education have been broadened and diversified by the 
addition of special courses, such as those dealing with en- 
gineering, chemistry, and business methods. In fact, it has 
become the object of the college to teach men the science of 
the things with which they will deal later on in life. 

The development of these special courses in college, largely 
effected since 1850, has had several important influences upon 
college education. In the first place, it has enormously 
increased the college attendance; in the second place, it has 
greatly aided the scientific development of the subject taught 
in college ; and in the third place, it has put many branches 
of business on a "college man basis." That is, the business 
man prefers to hire a college-educated man. This attitude 
has resulted in many lines of industry opening for college 
men, and in responding to these demands, the college has 
broadened its scope still more. 

As has already been pointed out, the effect of college 
education is felt particularly in the development of managers 
and sometimes of organizers. 

The question of college education is an important one, 
and each year it becomes more so, because each year the 



136 TEXT-BOOK OF ECONOMICS 

college broadens its scope and each year more men are able 
to take the courses offered in college. But most people do 
not get to college, — not one per cent of the students who 
enter our public schools, — so that in discussing the effect of 
our educational system on the labor force, we must lay our 
chief emphasis on the lower schools, which alone reach the 
vast majority of American children. 

With the exception of the introduction of kindergarten 
training the elementary schools have been changed very 
little since their inception. The elementary school teaches 
the Three R's, — reading, 'riting, and 'rithmetic. The high 
school and college courses are considerably advanced, but for 
the average member of the community who stops with the 
grammar school, few variations have been made. 

Y.M.C.A. classes, business schools, correspondence schools, 
and evening schools have been organized to provide 
education for many of those who wish to take low or medium 
salaried positions, but in some industrial communities where 
75 per cent of the population belongs to the unskilled or 
semi-skilled labor groups, neither the college, business school, 
nor any other higher school is of value. In these populations 
the essential thing is to give a rounded training in the first 
six years of school life, because many of the children begin 
work at fourteen or earlier. This need is particularly em- 
phasized in industrial towns, with populations of from two 
to twenty thousand. In these towns the courses furnished 
by the schools are monotonous and uninteresting, and to 
the average child and parent, unprofitable. Consequently, 
children drop out at an early age or go through school de- 
riving little benefit from the education which they receive. 

The children, the sons and daughters of wage workers, 
are given an education the primary object of which is to de- 
velop good school teachers. The average American boy 
prides himself on "doing things," and when he is set down 
on a wooden bench for several hours each day and told to 
study from a dry and, to him, uninteresting book, he resents 



THE SCHOOL 137 

the insult and appeals to the home authorities, who, desiring 
the income which the child may bring in, and unable to spend 
enough time to persuade him to remain in school, soon yield 
to his importunities and allow him to go to work. Thus the 
boy who leaves school at thirteen or fourteen and enters a 
factory is neither a better producer nor a better scholar for 
having gone through a portion of the educational system. 

A glance at school walls or benches will convince the ob- 
server that the average boy wants to use his hands. This 
seems but logical, since the average man is required to use 
his hands all through life, and yet between the kindergarten 
when it exists — and the manual training high school — 
where it exists — no opportunity whatever is presented to the 
healthy, normal boy who wants to do hard work. Under 
these circumstances, it is small wonder that the pocket money 
and freedom incident to work prove infinitely more attractive 
to the average boy than the dull monotony of school life. 

The girls in our school are on a slightly different basis 
from that occupied by the boys. The average girl in America 
will some day be called upon to keep a house, prepare food 
and clothing, and in other ways render the habitation home- 
like. The average woman in America does not know how to 
do these things properly, and she cannot therefore teach her 
daughter scientific methods of home making. As the com- 
mon school furnishes no possible clew in this direction, the 
girl leaves school and either goes to work in a factory or stays 
at home until she is married, after which, having no idea in 
most cases how to go about her work in the home, she renders 
it more or less unsatisfactory for her husband and children. 
We complain of unhappy homes, and seek their cause in 
every direction but the proper one; namely, training of the 
future wives and mothers. 

What would we think of sending an army to meet a foreign 
invader of which neither the leaders nor the men had received 
instruction in the methods of conducting a campaign? 
Against such a thing we cry out in horror, and yet every 



138 TEXT-BOOK OF ECONOMICS 

year hundreds of thousands of children are born to mothers 
who have no more idea of the proper method of caring for a 
child than an untrained man would have of conducting a 
military campaign. To be sure, these mothers learn in time, 
but too often failure is their teacher. 

As a nation, in time of peace, we prepare for war, but the 
mainstay of any nation in war or peace, its men and women, 
are being constantly born into homes and brought up by 
mothers who have no concept of scientific methods of caring 
for, feeding, or educating a child. 

It is not that these things have not been studied and put 
on a scientific basis. Men have given their lives to working 
out the problems connected with them, and with marked 
success. The school system simply fails to train the child 
to meet its life responsibilities, and in so far as it fails to do 
this, as a school system, it is a failure. 

The conclusion of the whole matter is, therefore, that our 
school system needs to be radically changed if it is to cope with 
modern conditions in a modern way. In the first place, it 
is the duty of the school to act as a connecting link between 
the home and the future pursuit of the scholar. As has been 
pointed out, there is not the remotest connection between 
the school life of the average boy or girl and the after life 
of the same individual. They are two distinct things with 
no connection between them. The perfected school system 
would present such a connection, taking the child from the 
home at six years of age, and turning the same child into the 
world at sixteen or eighteen years of age, prepared for the 
work of life; teaching the boy things that would make him 
not only a good school-teacher, a good railroad president, 
or a good senator, for all of these trades are limited in num- 
bers, but teaching him to work well as a skilled or an un- 
skilled wage worker, with his brains as well as with his hands ; 
turning out boys who would make skilled mechanics, thorough 
miners, and competent weavers, for all of which the demand 
is active. 



THE SCHOOL I39 

Going hand in hand with this necessity for a relationship 
between the boy's school life and his after life, is the necessity 
for the intimate relation between the girl's school life and her 
after life. If she would keep a good home and have her 
husband stay away from the saloon, her house must be neat, 
her food well prepared and palatable, and her own appear- 
ance attractive. There is an intimate connection between a 
disorderly house, a slovenly housewife, and tough meat for 
supper, and a long session in the saloon after supper. These 
things may not all of them be remediable through school 
education, but at least our school system can make an attempt, 
which it does not make now, to remedy them. Then, too, 
the girl should be provided with a training that will fit her 
to be a good mother, to care for her children judiciously, to 
feed and clothe them properly, and to educate them wisely. 
The germ of life's character is developed in the first seven 
years. Those first seven years should therefore be guarded 
and guarded with the utmost care. 

There is another way of looking at the matter. The old 
apprenticeship system has gone from industry. We no longer 
take a child into a business and teach him or her a trade. 
The child goes into business to do one small operation in the 
productive process. This fact arises from the development 
of a system of division of labor, and the application of power 
to industry, but aside from the cause of the condition, the 
condition itself is with us, and if we are to maintain a labor 
force, skilled, capable, and highly intelligent, the foundation 
of that skill and intelligence must be laid in a school system 
which prepares the worker for his work. 

As has been pointed out, the average school does not afford 
this training and therefore does not hold the scholar. It 
is no accident that 75 per cent of our public school children 
are in the first five years of school. 

The possibilities of a school system for the development 
of a high standard of efficiency in both boys and girls are 
infinite. Thus far the American school system has failed 
to measure up to its possibilities. 



I40 TEXT-BOOK OF ECONOMICS 

TOPICS FOR CLASS DISCUSSION 

1. What should be the purpose of education? 

2. Should there be definite connection between the school life and 
life in the world ? 

3. What does the school in your community do to prepare boys for 
the work of life ? 

4. What life preparation does the school furnish for girls? 

5. Should manual trai'iing be introduced in all grades between the 
kindergarten and the high school? 

6. Should the public school include a scientific domestic science 
training for girls? 

7. Is universal education a good thing? 

8. What advantages and disadvantages would accrue to the country 
if free education were abolished? 

9. Would it be wise to make it possible for everybody who wished it 
to secure a university education? 

10. What has the college done to prepare men and women to meet 
the work of fife? 

11. What is the economic basis for education? 



CHAPTER XVIII 

CHILD LABOR 

In the last fifteen years people in America have begun 
to talk about the question of child labor. It has been dis- 
cussed by labor unions, women's clubs, and educational 
authorities, and is now one of the popular economic questions 
of the day. 

The question is being discussed as if it were a new one. 
As a matter of fact, it is as old as the factory system, and has 
developed with the development of the kind of machinery 
which requires mere mechanical attention and no skill, 
strength, or ingenuity to operate it. 

The child-labor problem assumed its first importance in 
England, and it there developed in its most extreme and 
disgraceful form. When the act to regulate the health and 
morals of apprentices was passed by Parliament in 1802, 
evidence was introduced into Parliamentary Committees 
to show that the poorhouses and orphan asylums of England 
were in the habit of getting rid of their children to manu- 
facturers, and that in some extreme cases the latter agreed 
to take one insane child with every twenty healthy ones. 
These children were quartered in barracks and worked on 
day and night shifts, the day shifts sleeping in the beds which 
the night shifts left, and vice versa. The children were fed 
on the worst kind of food, and the sanitation of the barracks 
was notable by its absence. These conditions of life led to 
the outbreak of epidemics and of disease which called the 
public attention to the evil and led to the passage of the act 
of 1802. 

141 



142 TEXT-BOOK OF ECONOMICS 

However, this did not in any way assist the free children 
whose fathers and mothers were wilhng to allow them to go 
into the cotton mills and work at any age from six or seven 
years and up. It was not until 1847 that a really effective 
law was passed prohibiting the labor of the younger children 
and regulating labor of all women and children employed 
in industry. 

The manufacturing interests were solidly opposed to the 
passage of any legislation, holding to the policy which Eng- 
land was then pursuing of imposing no legislative restraints 
whatever upon the development of industry. However, 
after several parhamentary committees had investigated 
conditions of the working population, the revelations of 
degradation and hard working conditions were so startling 
that it was practically impossible to resist the demand for 
some kind of factory legislation. 

In Germany and France the problem took a somewhat 
different course, but there the factory system did not develop 
as early as it did in England. These countries, therefore, 
had England's experience to direct them, and, in addition, 
it was found in the early development of the factory system 
that the factory population were failing to furnish as effective 
soldiers as the agricultural population. This fact led to in- 
vestigations, which showed that in some districts of France, 
for example, an agricultural district furnished twice as many 
qualified soldiers per thousand men drafted as a near-by 
factory district. These discoveries led to the restriction of 
child labor at an early period, and in consequence the problem 
never developed to a serious extent in either France or Ger- 
many. 

In the United States the problem is of recent origin, because 
it is only within the past half -century that we have developed 
our factory system sufficiently to permit of the employment 
of many children. According to the census of 1900, one 
and three-quarter millions of children between the ages of ten 
and fifteen years of age were engaged in all kinds of gainful 



CHILD LABOR 



143 



occupations. One million of this number were working 
in agricultural pursuits, and the other three quarters of a 
million were engaged in manufacturing and mining, domestic 
service, professional service, and trade and transportation. 

The child-labor problem has assumed a particularly 
acute form in the South, where a large number of "poor 
whites" from the hills have gone down into the districts con- 
trolled by the newly erected cotton mills, and the whole family 
has gone into the mill, with the exception of the father, who, 
in some cases, carries the dinner pails to the children and 
draws the pay for the family on Saturday night. 

It is generally conceded that the effect of factory work 
on the average child under fourteen or fifteen years is bad. 
In the first place, we have come to believe that in order to be 
an efficient member of society, every person should receive 
at least a minimum amount of education. The child who 
stops school at an early age and goes into the factory and 
works for long hours at some monotonous task not only does 
not learn, but actually forgets what little schooling he was 
able to secure before going to work. 

As to whether the moral atmosphere of the factory is bad 
for the average child is a question that has been discussed 
vigorously from both sides. There can be no denying the 
fact, however, that a child of tender years who is placed in 
contact with grown men and women of all kinds is in a 
position to learn many things which would not be learned 
from either school companions, school teachers, or members 
of the family at home. 

The effect of factory work on the physical make-up of a 
growing child is apparent. The natural tendency of the 
child is to play. It is through play that children grow and 
develop both mentally and physically. Play involves a 
change of occupation at the will of the person who is playing. 
In contrast with this activity, the essential thing about modern 
factory work is that it is monotonous, long continued, and 
continued at the wnll not of the worker but of the boss or 



144 TEXT-BOOK OF ECONOMICS 

foreman. The child in the "factory is given mechanical 
things to do because of his lack of skill and ability to do 
better things. For example, he may turn in the edges of 
a box cover, tie a broken thread on a spinning frame, sort 
out pieces of iron to be made into bolts, or a thousand other 
mechanical operations which form a part of modern factory 
work. The child who is compelled to do one thing for a 
thousand or five thousand times a day, day after day, week 
after week, does not grow and develop either mentally or 
physically, but is stunted in both directions. 

In short, it is fair to say that the child who is working is, 
as a rule, not developing intellectually, may be degraded 
morally, and is apt to be stunted physically. The main- 
tenance of an efficient labor force in the community requires 
a development in each person of mental, moral, and physical 
traits, and from the standpoint of society, we cannot afford 
to continue a system which, by working a child at an early 
age, renders him a less efficient producer for the rest of his 
life. 

Aside from the effect of factory work, it is interesting 
to note that child labor means for the time being at least a 
decrease in the amount of labor which may be had by adults. 
For example, in England before the factory system began, 
men of skill and ability were required to do the spinning and 
weaving. The moment an invention was perfected which 
enabled a machine to do most of the work, and simply re- 
quired mechanical attention to see that the threads did not 
break, it became possible to dispense with the skilled man 
and employ an unskilled child. In other words, labor-saving 
machinery tended by children results in depriving adults 
of their places in this particular occupation. A well-known 
illustration is given of a shoemaker in Massachusetts who 
was working in a factory for $2 a day. A machine was 
invented and put in operation which did the work, and this 
man was dismissed and his son of fifteen employed at $1 a 
day to tend the machine. 



CHILD LABOR 145 

The effect of child labor on family life, and therefore on 
the social structure, is, to say the least, detrimental. This 
is particularly true of girls from twelve to fourteen who go to 
work in factories, and from that time till they are married are 
employed in factory work from nine to eleven hours per day. 
They have no opportunity whatever of learning home duties, 
and when the time comes for them to marry, as it usually 
does, they will be less efficient housewives and home makers 
than if they had secured either at school or at home some 
training that would prepare them for their lives as wives and 
mothers. 

It may seem an odd thing but it is at least interesting to 
note that child labor is always more prevalent in new indus- 
tries and in new communities which for the first time are de- 
veloping industries. In the old communities, manufacturers, 
as a rule, refuse to employ children under fourteen and often 
under sixteen, on the ground that a child under sixteen is so 
unintelligent, irresponsible, and reckless that it is apt to 
waste more than it makes. Such a child is so inefficient that 
a man at twice the salary can produce far more than twice 
the product. It is a well-known fact that goods manufac- 
tured in the South, where child labor is prevalent, bring a 
lower rate in the market than goods manufactured in the 
communities where there is not so much child labor em- 
ployed. The community is very generally coming to believe 
that child labor is not only cheap labor so far as wages are 
concerned, but it inevitably results in a cheap product, — 
cheap both in price and in quality. 

From a national standpoint, therefore, the employment of 
small children to do the work of the world is a mistake 
because it inevitably leads to a depreciation in the quality 
and character of the laboring force of the community : first, 
because it impairs the ability of the child ; second, because 
of its effect upon the home and social life ; third, because it 
affects adversely the wages of adult labor ; fourth, because it 
results in a poorer product. From every standpoint, child 



146 TEXT-BOOK OF ECONOMICS 

labor is detrimental and should be strictly suppressed in the 
interest of the coming generations. 

TOPICS FOR CLASS DISCUSSION 

I. What is the chief evil of child labor? 

^ 2. Discuss the benefits of child labor from an economic standpoint. 

3. What are the effects on children of early employment? 

4. What effect has child labor on the adult laborer? 

5. Is child labor necessary to produce great captains of industry? 

6. What is the effect on children of keeping them away from work 
for wages until they are sixteen ? 

7. Who is the chief gainer from child labor? 

8. Who is the chief loser? 

9. Do manufacturers cause child labor? 

10. Are parents responsible for child labor? 

11. To what extent are the children themselves responsible? 

12. What attitude should society take toward the child-labor question? 

13. Outline the economic effects of child labor on the community. 



CHAPTER XIX 



WOMEN WHO WORK 



In 1900 there were about 5,000,000 women working in 
gainful occupations in the United States. Forty years ago, 
women were a negligible quantity in most industries. In 
1900 one sixth of those gainfully employed were women, 
and there was no important branch of industry in which 
they were not engaged. 

The effects of the entrance of women into industry have 
been variously estimated, but the causes are obvious. In 
the first place, the development of modern industry has per- 
mitted a minute subdivision of labor which gives each person 
in an industry a very small and definite operation to perform. 
For example, a girl may paste corners on paper boxes, or 
watch a spinning frame to see that the threads do not break. 
These operations are largely mechanical and require speed 
and dexterity rather than mechanical ingenuity. In the 
modern factory, a regular machinist is employed to see that 
the machines are in good condition and running properly, 
while the operating of each machine is done by one who 
knows nothing of its mechanism but has mastered the art of 
tending to the needs of that particular machine. The opera- 
tor may sew one seam on a pair of overalls, or put buttons 
on a coat, or stamp out pieces of paper to make Christmas 
cards, or do any one of a thousand things, each of which is 
simple, and acquirable in a short time. A girl of sixteen or 
eighteen can go to a factory and in a few days learn to manage 
a machine without having any previous training or appren- 
ticeship. To be sure, her efficiency will not be high during 

147 



148 TEXT-BOOK OF ECONOMICS 

the first few months, but she can at least make a living at 
the work. 

In the second place, this minute subdivision of labor per- 
mits of what is known as the standardization of industry. 
Each of these small operations becomes fixed or standard- 
ized. No experience is required to manage a certain machine ; 
the work can be learned in a short time ; and anybody with 
a small amount of training can carry on this part of a produc- 
tive operation. It is not necessary to keep the same person 
at work on the same machine, for so long as the machine 
is kept going, production continues. That is, production 
depends not upon the individuality of the worker, but rather 
upon the continued operation of a standard machine. 

The third reason for the entrance of women into industry 
is the possibility of their working considerably cheaper than 
men. A man in industry requires a wage sufficient to main- 
tain himself and his family, whereas many women living at 
home, with little or nothing to do, are willing to go into in- 
dustry in order to secure spending money, or enough money 
to guarantee them the little necessities and luxuries of life 
that a young woman naturally desires. As a rule, these 
women are single, have no one dependent on them, and in 
many cases can secure their living at home. Thus they are 
willing to work for fifty or seventy-five cents or a dollar a 
day, whereas a man cannot support a family and work in 
the same industry for less than $2 a day. In consequence 
women are employed, and men leave the industry. This 
is particularly true in such an industry as cigar making, 
which requires dexterity rather than strength. Cigars 
which were formerly rolled by men for seventy-five or eighty 
cents a hundred are now rolled in some factories by girls 
for thirty-five or forty cents. Men are forced out of the in- 
dustry, because they cannot afford to work at such low 
wages, whereas girls, ranging in age from sixteen up, are very 
willing to receive $3 or $4 a week for their efforts. 

Had labor not been subdivided and industry standardized, 



WOMEN WHO WORK 149 

women would have found it difficult to enter many industries, 
but with the development of machinery, leaving to the worker 
only quick, mechanical movements to perform, women are 
often more desirable than men because of their greater 
dexterity and quickness. 

From the standpoint of industry, these are the prime 
causes leading women to take up industrial pursuits, but one 
of the chief things that has led young women staying at home 
to go into industry has been the fact that nearly all of the 
industries which were formerly carried on at home are now 
carried on in factories on a large scale. Spinning and 
weaving and the manufacture of clothing were the first things 
to leave the home. Although in some mountainous districts 
of the South clothing is still spun and made up at home, 
the great majority of people in the United States to-day 
wear factory-made cloth and clothing. A hundred years 
ago factory-made cloth and clothing were the exception and 
not the rule. 

The changing of spinning and weaving from a home in- 
dustry to a factory industry meant that all persons who were 
engaged in these industries must move into towns, because 
only in towns could a factory system be carried on when the 
transportation was as defective as it was in the early part of 
the nineteenth century. This moving into towns meant that 
people would no longer be able to keep chickens and cows, 
and the women of the household were therefore deprived of 
another occupation ; namely, tending the chickens and cows 
and taking care of the milk and making butter. 

Then the manufacture of underclothing and stockings was 
undertaken in factories with exactly the same result. People, 
instead of engaging in these occupations at home, bought 
factory-made goods because they were cheap. At the same 
time, in order to buy factory-made articles, they moved to 
town and secured employment in the factories. Thus the 
making of clothing in factories instead of at home removed 
from the women of the household a great group of occupa- 



15° 



TEXT-BOOK OF ECONOMICS 



tions which had formerly taken up a large part of their 
time. 

Within the last twenty years, the preparation of food 
stuffs, another great group of consumption goods, has been 
relegated to the factory. Until recent years, bread was baked 
at home. Now one bread company located in a city, for 
example, Buffalo, sends bread to small towns two hundred 
miles away. Meat was formerly killed and dressed at home. 
It is now killed in the Middle West and delivered dressed to 
all parts of the world. Most households no longer make 
their own soap, but buy the product ready-made. The same 
is true of canned fruit and vegetables. Successful factory 
processes have been devised by which they are prepared 
in factories and shipped far and wide to the consumer. 
Cakes, cookies, crackers, and breakfast foods are also pre- 
pared in factories and shipped to all parts of the country, 
"pre-digested," and ready to eat. 

Thus of the three occupations, sewing, cooking, and clean- 
ing, which woman formerly performed at home, two, sewing 
and cooking, are carried on in factories, while the cleaning 
still remains a problem. Much of this, however, has been 
shifted to the laundry and automatic carpet-cleaning com- 
panies, and within a generation woman will be deprived 
of practically every occupation which was formerly con- 
sidered to be in her home sphere. Therefore, when a girl 
finishes her schooling, there is no possibility for her to engage 
in any occupation at home, and she naturally follows the 
occupations which have left the home and gone to the factory. 

A minute subdivision of labor and a standardization of 
industry have made it possible for women to enter industry ; 
the wish to supplement the family income or the necessity 
for so doing, and the absence of home employments, due to 
the replacement of home industry by factory industry, have 
made the woman desirous of entering industry ; and these two 
causes, working side by side with the possibility of woman's 
working cheaply and the superior ability of women to carry 



WOMEN WHO WORK Igl 

on standardized industry, have led to the great rush of women 
into gainful occupations. 

The question of women in industry has attracted consider- 
able attention in late years, and bitter discussions have re- 
sulted. On the one hand, it is argued that — 

1. Woman is the home maker and that she should perform 
that function and no other, as it is not possible for any one 
to do two things well at the same time. 

2. Children can be brought up properly only when subject 
to the constant care of the mother, and that this cannot be 
given if the mother is working a large part of her time in an 
occupation apart from the home. 

3. Factory labor injures women much more than it injures 
men. Women are so constituted physically that long stand- 
ing or arduous work is apt to result seriously. 

4. The work of women results in cutting down the wages 
of men. 

5. The working of married women has a serious effect 
on the coming generation of children. 

On the other hand, those in favor of women engaging in 
industry maintain that — 

1. There is little left for a woman to do at home, and that 
as it is bad to be idle, it logically follows that she should go 
into the factory. 

2. A woman working at home is working all the time, 
whereas if she engages in factory work her hours are definite 
and limited. 

3. Women do not care for children all of the time even 
when they remain at home, because of the fact that the 
children are in school during a large part of the day. 

4. With our standardized industry, the physiological dif- 
ferences between man and woman need play no part in the 
controversy, because the continuance of a given operation 
does not require the constant presence of one operator, but 
may be carried on one week by one person and the next 
week by another. 



152 TEXT-BOOK OF ECONOMICS 

5. The entrance of women into industry makes them 
independent. Heretofore, women in poorer and larger fami- 
lies were compelled to get married in order to relieve their 
fathers of the burden of taking care of them. The results 
of such forced marriages were in many cases unhappiness 
and misery. Under the new system, women as independent 
wage earners can actually assist their fathers in taking care 
of the home, and need marry only when they meet a con- 
genial person. 

6. The entrance of women into industry places women 
and men on an equality, whereas under the old system, where 
man alone earned a livelihood, women were constantly sub- 
ject to the disagreeable necessity of asking the men for money. 
The placing of men and women on an equality means de- 
mocracy in its highest form, because in a democracy there 
are no superiors and no inferiors. This development of 
women will mean a higher standard of children, — children 
of more character and independence. 

7. It is not fair when the work of the world is done so 
largely by machines to require the women to do the drudgery. 
It is not necessary to banish her to the tub, the needle, and the 
hot stove, while the man engages in more interesting and 
enjoyable pursuits. 

8. Women are needed in industry because there they can 
produce far more than they could at home. In modern 
standardized industry women are often more skilled and 
therefore more productive than men, because the heavy 
work is all done by machinery and only dexterity and skill 
are required. Women often possess these qualities to a 
higher degree than men, and besides, women as a whole are 
steadier and more reliable as workers. All modern inven- 
tions and improvements tend to place women on a level with 
men and give them the same advantages in the industrial 
world. 

The controversy is not yet ended, and each person is at 
liberty to draw his or her own conclusions. Without ques- 



WOMEN WHO WORK 



153 



tioning the validity of the arguments on either side, it is 
undoubtedly true that women are going into industry every 
year because of the possibilities which modern industry 
presents to them to become effective earners, and because of 
the necessity of having some occupation. Unquestionably, 
women are in industry to stay. The problem of society 
is so to mold industry that it may not injure the women 

who engage in it. 

•i 

TOPICS FOR CLASS DISCUSSION 

1. Why have women gone into industry? 

2. Upon what is the home founded? 

3. What is the effect on home hfe of having the wives and mothers 
in mills and factories? 

4. Is modern industry a proper field for women's activity? 

5. Is the American woman fitted to take a position in modern in- 
dustry? 

6. What is the industrial value of women? 

7. Is it possible or desirable to place women on an industrial equality 
with men? 

8. What steps could be taken to keep women out of industrial pur- 
suits? 

9. State the economic effects of women's industrial activity. 



CHAPTER XX 

COST OF INDUSTRIAL PROGRESS 

So much, then, for the specific problems which arise in 
our treatment of the labor force. There are several other 
problems which relate directly to this question. They will 
be discussed under the head, "Cost of Industrial Progress." 

It should be borne in mind that the industrial conditions 
which are spoken of in this chapter are not a necessary part 
of our modern industrial system, but are rather incidental 
to it and separable from it, if the proper energy and intelli- 
gence are directed to that end. 

It goes without saying that if we would maintain an intelli- 
gent, capable labor force, we must treat the individual laborer 
well. Every man in the community has a vital concern 
in the work done by every other man, because if all produce 
largely, all have the possibility of consuming largely ; whereas 
if any one is not producing, it will naturally follow that the 
community as a whole will have less to consume. One of 
the leading causes of low productive efficiency on the part of 
the community is the industrial accident. While no accurate 
figures can be secured, it is conservatively estimated that 
about 525,000 people are killed and injured in the United 
States every year through industrial accidents. This is a 
larger number than were killed and injured in the Russo- 
Japanese War, the Spanish-American War, and the Boer War 
combined, and it does not take into account the many thou- 
sands injured by industry in a less spectacular way. Those, 
for example, whose lungs are ruined by breathing the fine 
dust which arises from some kinds of polishing, and those 

154 



COST OF INDUSTRIAL PROGRESS 155 

whose constitutions are broken down by work in lead works 
or with phosphorus, are injured just as vitally and their 
productive capacity is decreased just as surely as though the 
same individuals had been caught in a collision. The dif- 
ference is that such cases do not reach the daily press. They 
are too commonplace. But there are 500,000 and more 
accidents annually that we can see and appreciate because 
the injury inflicted comes suddenly and in a "newsy" manner. 

We may divide industrial accidents into four groups: 
first, accidents in transportation; second, accidents in min- 
ing; third, accidents in manufacturing; and fourth, acci- 
dents in building and construction work. 

The accidents occurring in transportation are the only 
ones of which we have a complete record because they are 
compiled by the Interstate Commerce Commission, which 
derives its authority from the United States government, 
and is able to secure complete reports from all parts of the 
United States. While the number varies from year to year, 
the killed and injured on our railroads approximates 80,000 
annually. That this death roll is needlessly extended is 
shown by the fact that accidents among our railroad em- 
ployees are twice as prevalent as among the railroad em- 
ployees of Germany, and three times as prevalent as among the 
railroad employees of Austria-Hungary. The deaths among 
the railroad employees are three times as great as in Germany 
and five times as great as in Austria-Hungary. In other 
words, we take less care of the employees on our railroads 
than they do in European countries. 

Railroad accidents are due to (i) defective mechanical 
devices, such as switches, couplers, and brake shoes. These 
things are all remediable. Before the perfection of the 
automatic coupler, brakemen were required to couple cars 
by hand, with a high resulting mortality. The automatic 
coupler remedied the defect. Other safety devices can be 
substituted with equal effect in other branches of the service. 

(2) Mistakes of employees. While we cannot perfect 



156 TEXT-BOOK OF ECONOMICS 

humanity, all at once, those mistakes which are due to over- 
work or to the failure to secure a high grade of men can be 
remedied by the railroad companies. 

(3) The negligence of the general public. As long as 
men and women insist on walking in front of trains, they 
will be killed, despite any action of the railroad company. 
Much can be done by the elevation of tracks, the removal 
of grade crossings, and similar changes in construction. In 
the long run, however, the public must look out for itself 
wherever possible. 

The statistics of mining are compiled in some states by 
the mine inspector. In the first place, this compilation is 
incomplete; and in the second place, in many states it is 
not made at all, whereas in still others there is no mine in- 
spector to make it, and in consequence, we cannot present any 
general statistics from mining. It is stated that in Penn- 
sylvania one miner is killed for every 55,000 tons of coal 
mined. This does not, of course, include those miners who 
stop work at an early age — the victims of miner's asthma 
and other diseases arising from the work in the mines. 

A series of statistics recently compiled by the United States 
government authorities shows that while in most European 
countries, with their deep mines, accidents are decreasing 
proportionately, in the United States, v/ith comparatively 
shallow mines, accidents are increasing. The problem has 
been studied in Europe. The same course must be pursued 
here. 

The accidents in manufacturing are even less satisfacto- 
rily reported than those m mining, because in no state are 
all of the manufacturing establishments regularly covered 
by factory inspection. 

Accidents in manufacturing and mining are largely pre- 
ventable. If there is gas in the mines and the miners use 
open lamps, sooner or later there will be an explosion. If 
there are unprotected gear wheels in a factory, sooner or 
later some one will be caught in them. In both cases, 



COST OF INDUSTRIAL PROGRESS 157 

rigorous government inspection and a requirement that all 
of the known safety devices be installed would result in an 
appreciable decrease in the number of those killed and in- 
jured in industrial pursuits. 

The statistics of building are even less reliable than those 
for mining or manufacturing, because there no one is re- 
sponsible for compiling the list of such accidents. Enough 
has, however, been said to show that men and women and 
children are being killed and maimed every year. What 
results can be directly traced to the killing and maiming of 
a half million people annually ! 

In the first place, the community is deprived temporarily 
or permanently of the productive powers of 500,000 men, 
women, and children. It is impossible to put in dollars the 
amount of such a loss, but when it is considered that there 
are in the United States only about 29,000,000 wage earners 
and that of this 29,000,000, 500,000, or 2 per cent, each 
year are killed or rendered temporarily or permanently 
unproductive through maiming, it becomes apparent that 
the loss to the community is an exceedingly important item. 
The productive capacity of the community is being di- 
minished by an unnecessary evil, and the whole community 
is poorer for the loss. 

In the second place, while the 60,000 or 70,000 persons 
who are killed every year through industrial accidents no 
longer affect the community, the 30,000 or 40,000 who 
remain either temporarily incapacitated or permanently 
disabled constitute a real problem which must be met. 
Slight injuries which result in laying a man off for a week 
or a month merely render him unproductive during that 
period. The result of such an injury will be felt only by 
the family which is forced to curtail its expenditures while 
the breadwinner is not earning. On the other hand, in- 
juries which render a man permanently unproductive pre- 
sent a serious problem. Not only do such people help to 
increase the number of beggars and paupers with which 



158 TEXT-BOOK OF ECONOMICS 

the community is already overrun, but they overtax the 
hospitals, the poorhouses, and other institutions supported 
either wholly or in part by public funds. Furthermore, 
by throwing those dependent on them on their own resources, 
they overstrain the mothers, and prematurely exploit the 
children. 

In the third place, the man who is incapacitated is not 
only unable properly to feed and clothe his children, but he 
is also unable to give them the care which they require, and 
he therefore runs the great risk of presenting to the com- 
munity problems in the form of incorrigible and delinquent 
children who fill up the jails and reformatories. 

From this discussion, we may therefore conclude, first, 
that an unnecessarily large number of persons are annually 
killed and injured in industry; second, that the burdens 
resulting from these accidents fall ultimately, not upon the 
persons injured nor upon their families, but upon the com- 
munity; and third, that from the standpoint of preserving 
industrial efficiency and preventing dependence on public 
support, it is wise for the community to put an end to as 
many of these industrial accidents as are preventable. 

Another problem which presents itself, and which is 
secondary only to that of the industrial accident, is the 
problem of sanitation. Tuberculosis resulting from dust- 
laden factory air is just as serious for the worker as the 
accident resulting from a railroad collision. The only dif- 
ference is that the accident is announced in the papers, while 
the case of tuberculosis is known only in the home and at 
the hospitals and is never brought to public notice. 

The bad sanitation in modern factories may take the form 
of: first, dust; second, poisonous vapors; third, extreme 
heat and cold; and fourth, lack of ventilation. 

Perhaps the dust in the coal mines and coal breakers is 
more evident than anywhere else. At the hearing before 
the Anthracite Strike Commission in 1902, the attorneys 
for the miners presented a miner's lung, preserved in alcohol, 



COST OF INDUSTRIAL PROGRESS 159 

which was perfectly black from the minute particles of coal 
dust breathed in during the years of work in the mine. In 
certain departments of felt hat factories, woolen mills, jute 
mills, and cotton factories, the. air is filled with flying lint 
almost imperceptible to the eye, but in the course of hours 
a thin coating of fine dust is left on the machinery and the 
other objects in the work room. This dust, breathed into 
the lungs, means trouble to the worker sooner or later. 
Dust in the coal breaker can be largely prevented by screen- 
ing the coal wet. Dust in factory rooms can be rendered 
far less dangerous by the introduction of suction wheels, 
blowers, and other mechanical appliances. 

It is not necessary to comment upon the dangers arising 
from working with materials such as phosphorus and white 
lead. It is perfectly well known that lead poisoning and 
phosphorus poisoning are almost the inevitable result of 
working in these factories, particularly if the work is con- 
tinued for a great number of hours per day. But the effects 
of the poison can be greatly decreased, if not completely 
overcome, by wearing masks which keep out the fumes and 
by working for such a small number of hours per day that 
the poison gets no chance to take effect. 

In glass works, foundries, and rolling mills, the workers 
are subject to extremes of heat and cold, particularly on 
leaving the mills from a night shift in the winter time. In 
many factories, principally cotton mills, it is necessary to 
maintain a high temperature in the damp atmosphere so 
that the threads will not break, and in such instances the 
results are sometimes serious for the workers. These dangers 
can be minimized by decreasing the length of the working 
shifts, so that the workers will not be overstrained. In 
short, here is a long series of causes which lead inevitably 
to diseases, or at least to a reduction in the working power 
of the individual who is subject to them. Prevention is 
nearly always possible, and, as in the case of the industrial 
accident, it is the duty of society to prevent them, not only 



l6o TEXT-BOOK OF ECONOMICS 

from the standpoint of humanitarianism, but from that of 
self-preservation as well. 



TOPICS FOR CLASS DISCUSSION 

1. Are industrial accidents inevitable? 

2. In a case where persons are killed and injured in a wreck due pri- 
marily to a defective air brake, what should be done? 

3. To what extent is the community at large responsible for accidents? 

4. Where does the ultimate burden of industrial accidents rest? 

5. Should a manufacturer be held personally responsible for an 
accident due to unguarded machinery? 

6. What would be the most effective method of preventing accidents? 

7. Who secures the benefit from long hours of labor? 

8. What is the object of having long hours? 

9. What is the economic effect of unduly long hours of work? 

10. Should the working hours of men be restricted by law? 

11. Why are unsanitary working conditions tolerated? 

12. Discuss the elements in the present industrial system that make 
for inefficiency. 

13. Discuss the elements that make for efficiency. 

14. What changes can you suggest in the modern industrial system 
that will increase efficiency? 



BOOK V 

CHAPTER XXI 

THE ORIGIN AND CHARACTER OF CAPITAL 

The discussion has thus far included the two primary 
essentials to production, land, or natural resources, and 
labor, or human energy. These factors are spoken of as 
primary essentials in production because both must be pres- 
ent in every productive operation. It is impossible to 
conceive of a productive operation without land and labor. 
The fish in the stream and the coal on the mountain side 
could not be converted into wealth if there were no people 
by to catch the one or pick up the other. In the same way, 
if there were no fish to catch nor coal to pick up, labor 
would be helpless and unable to produce wealth. 

While these two things are the primary essentials in any 
productive operation, there is a secondary essential, capital. 
Capital is spoken of as secondary because it is the result of 
the application of labor to natural resources. If all of the 
capital in the community were destroyed, it could be re- 
placed by the application of labor to land. The destruction 
of all of the labor or all of the land in the community would 
render production impossible. Labor and land are, there- 
fore, described as of primary, and capital as of secondary 
importance in production. Production is not absolutely 
dependent upon capital for its continuance, whereas it is 
dependent on land and labor. As has been shown, however, 
modern industry requires the presence of all three factors. 

Speaking generally, the United States has capital, while 
China has none. To be sure, this statement is not ab- 
solutely true, because no productive operation, even in the 

M l6l 



1 62 TEXT-BOOK OF ECONOMICS 

most primitive community, can be carried on without the 
use of some capital; but the thing that is characteristic of 
the modern industrial system, which has been so highly 
developed in America, is the presence of enormous funds of 
capital. Nowhere are these funds larger or more numerous 
than in the United States. The United States Steel Cor- 
poration, the Standard Oil Company, and the transcon- 
tinental railroads are among the best examples of the or- 
ganization of funds of capital for productive purposes. 

In order to bring out the contrast, and to show the ad- 
vantages secured by creating large funds of capital, consider 
for a moment two communities, one of which stores up 
wealth in an unproductive form, while the other stores it 
up in the form of capital, — that is, in a form that will aid 
in producing additional wealth. Perhaps no community 
so well illustrates the storing up of wealth in unproductive 
forms as ancient Egypt. The kings spent millions in money 
and consumed millions of days' work to erect pyramids and 
sphinxes. To be sure, these great engineering feats remain 
to this day as monuments and relics, but they are as useless 
to mankind now as they were useless in the days of the 
Pharaohs. They are not capital because they cannot be used 
in future production. They merely represent a great ac- 
cumulation of unusable wealth. 

In the erection of the pyramids the Eygptian kings used up 
the surplus of Egypt. The surplus wealth, which might other- 
wise have gone to building up a strong commercial or in- 
dustrial nation, was sacriticed to the royal desire for glory. 
In America, in distinct contrast with the conditions in 
Egypt, the surplus is utilized largely in facilitating the 
production of more wealth; that is, it is utilized as capital. 
The test which any community must apply is the one sug- 
gested above. If wealth is being used in furthering pro- 
duction, it is capital. If no productive use is being made 
of it, wealth is not capital. 

The economists, therefore, say that capital consists of those 



THE ORIGIN AND CHARACTER OF CAPITAL 163 

products of past industry which are being used in further 
production. The pyramids of Egypt were the products of 
industry. However, they were not capital because they 
were not assisting in further production. On the other 
hand, the factory, railroad, or machine is capital because 
it is a product of industry and it does assist in further pro- 
duction. 

As has already been stated, productive operations to-day 
are capitalistic ; that is, they are carried on with the aid of 
capital, and under the modern system it would not be possible 
to conceive of a productive enterprise which could be carried 
on without the aid of capital. The naked savage catch- 
ing fish from the brook with his hands would be producing, 
that is, creating utilities in the fish, without the aid of capital. 
If he used a hook or a net, he would at once be engaged in 
capitalistic production, because the hook and the net are 
products of past industry which are essentials in assisting 
him to increase utilities in the fish, — that is, to produce. 

Excepting for such a far-fetched illustration as this, it 
is impossible to give any instance where society could carry 
on its productive operations, without the aid of some prod- 
uct of past industry, that is, without the aid of capital. 
In modern communities, capital is absolutely essential in 
productive operations. 

In general, then, those portions of wealth are capital 
which are the result of past industry and which assist in 
further production. It is possible to enlarge upon this 
statement by saying that capital includes the following 
things: first, improvements on land; second, roads, 
railroads, telegraph and telephone lines; third, tools, 
machines, and mechanical appliances ; fourth, raw materials, 
and partially manufactured materials which are to be 
used in the process of manufacturing. It is, of course, 
necessary in each case that the wealth be used in further- 
ing production. 

It is clear that improvements on land, such as buildings, 



1 64 TEXT-BOOK OF ECONOMICS 

streets, and railroads, are capital because they represent 
the products of past industry; that is, they owe their ex- 
istence to work which has previously been done by labor 
upon land, assisted by capital. When wealth so created 
is used to assist in further production, it is capital. Men 
regard capital as including also tools, machines, and me- 
chanical appliances, because it is clear that without them 
none of the operations of modern industry would be in any 
way possible. In the same way raw material and partially 
manufactured material are capital because both raw material, 
such as iron ore, coal, cotton, and wool, and partially finished 
products, such as bolts, lumber, and steel ingots, represent 
the results of industry, and they are destined to assist pro- 
duction in their various fields. 

In discussing the things that are capital there is a problem 
on which economists fail to agree, — the problem of the 
relation of money to capital. Is money capital? Perhaps 
no question arising under the discussion of capital has caused 
more difference of opinion than this single question. Those 
who hold to the view that money is capital, state their position 
in this way. 

Money is clearly the product of past industry. In order 
to prepare it for circulation, the mint, equipped with ex- 
pensive capital (tools and machinery) has expended labor 
in turning the money into its present form. As we receive 
the money it represents the application of labor to raw ma- 
terials. Furthermore, under the modern system, money is 
an absolute necessity in productive operations. The grocer 
needs money to make change; the manufacturer needs 
money to pay his employees on Saturday night ; the consumer 
needs money to purchase bread from the baker, milk from 
the dairy, and the other articles which go to form the daily 
diet of every normal family. In other words, money per- 
forms a very essential part in aiding modern production. 
If money is the product of past industry and if it performs 
a part in production, it is therefore capital. 



THE ORIGIN AND CHARACTER OF CAPITAL 165 

But these arguments do not apply to all money. For 
example, if a man were to receive one hundred dollars and 
put it in a stocking behind the chimney, this money would 
not be capital because it would not be assisting in production. 
It is, therefore, fair to conclude that, as with other commod- 
ities, money may be capital or it may not be capital, and 
the question as to its status at any given time may be deter- 
mined only by knowing whether or not the money in question 
is being used to assist in production. 

This represents the old view of capital, according to which 
things assisting in production, directly or indirectly, were 
included under capital. According to the newer view, in 
order to be capital, a good must aid directly in production. 

According to this view, the ax used by a woodsman to 
cut down a tree is capital because it is the product of past 
industry and is being used directly to assist in future pro- 
duction. On the other hand, the breakfast, eaten by the 
woodsman, while it is entirely necessary to the productive 
operation, assists it only indirectly and is, therefore, not 
capital. 

It is probably fair to say that economists are accepting the 
latter view more and more, and that, therefore, according to 
the best economy, in order to be capital, a good must assist 
directly in production. 

At this point it might be well to distinguish "capital" from 
"capital goods." As ordinarily used, "capital" is a more 
or less intangible and unchangeable thing. A business may 
be capitalized at $50,000 for twenty years. During that 
time every tool and machine used in the work may have been 
replaced by new ones, — in some cases three or four times 
over. The "capital" has remained the same, but the 
"capital goods," the various elements making up the capital, 
have been worn out and replaced. 

In that lies the distinction between capital and capital 
goods. Capital is the intangible, continuous thing which 
represents the total value of the wealth-producing products 



1 66 TEXT-BOOK OF ECONOMICS 

of past industry employed in the production of new wealth. 
The capital goods, on the other hand, represent the individual 
machines, tools, engines, and other tools of production which 
wear out in the course of time and are replaced. Capital is 
a constant factor. Capital goods are constantly changing. 

Perhaps the distinction can be brought out by an illustra- 
tion. A butcher, a baker, and a candlestick maker each 
have a capital of $10,000. To that extent, each is the same. 
But the capital goods of the butcher are tools for slaughter- 
ing animals ; those of the baker are tools and appliances for 
baking bread; while those of the candlestick maker are 
tools for the working of brass and other metals. The capital 
of each is the same, but in each case the capital goods are 
different. 

Every year a large part of the capital goods of the com- 
munity is destroyed. In the process of production coal is 
dug out of the ground only to be burned in a factory and thus 
destroyed. Steel billets are hammered into engine frames, 
and otherwise destroyed. In the same way other products 
of industry are destroyed in the creation of new products. 
Capital goods are being destroyed and constantly replaced 
by the operations of labor upon land, assisted by the capital 
as it is utilized in industry. 

Modern society has come to depend primarily upon capital 
for its existence. No one wishes to go back to the state of 
the naked savage catching fish from the brook with his hand, 
or picking berries from the bushes or digging roots from the 
ground. The community has become accustomed to the use 
of capital. Without it Hfe would be intolerable. What, then, 
is the origin of this capital, and how may it be replaced as 
it is destroyed? 

There was a time in the history of modern society when 
there was little wealth, barely enough to go around and keep 
people existing, and in those times capital could be accumu- 
lated only by saving; that is, instead of consuming all that 
he received, a man abstained from consumption and con- 



THE ORIGIN AND CHARACTER OF CAPITAL 167 

sumed but a small amount of what he would otherwise have 
consumed. When he had saved sufficient wealth through 
this abstinence, he used it to secure some new tool or method, 
such as a windmill or a sailboat, that would increase his 
productive efficiency. 

As a result of this necessity for saving, the idea was spread 
through the whole race, by means of the schools, the churches, 
and all of the other means of instruction, that it was necessary 
to save. The result of this education was the development 
of a strong desire to save. This attitude is perhaps best 
illustrated by the immigrant who comes to the United States, 
and lives on a low standard, to the great disgust of the people 
in America ; but this low-standard immigrant is merely carry- 
ing out teachings which have made modern industry possible. 
He is saving from his earnings and accumulating a great mass 
of wealth that can be used as capital. 

When the immigrant gets his wages on Saturday night, 
there are certain things which he deducts, — first, the amount 
which is to go to the savings bank; secondly, the amount 
which he pays for the rent ; and thirdly, the amount for food 
and clothes. 

When saving was necessary in order to create capital in the 
community, the hard-fisted man was in demand. He was 
valuable because he brought together a large amount of 
wealth which was used in further production. Modern 
society is on an entirely different basis. Through long 
periods of saving the capital in the community has been so 
greatly increased that there is no longer any need for indi- 
vidual saving. Not only can the modern industrial system 
produce enough for people to consume in the form of food, 
clothing, shelter, and recreation, up to a normal standard of 
living, but it can produce, in addition, enough to replace the 
capital which is constantly destroyed and to create large 
masses of new capital. Hence, the hard-fisted man is not in 
demand but rather the man who will consume and enjoy. 
It is no longer necessary that a man abstain in order to save. 



1 68 TEXT-BOOK OF ECONOMICS 

The community as a cooperative group is producing more 
than enough for all. 

The modern community learns to add to its capital, not by 
stinting, but by maintaining a standard of consumption that 
will bring to its highest point human efficiency. A man 
creates capital, not by learning how to save, but by learning 
how to use the tools of production efficiently. The em- 
phasis needs, therefore, to be laid, not on saving, but on 
efficiency. High efficiency will mean a great social surplus. 
It is the worker, and not the saver, who creates this surplus. 

This sum of economic goods above that necessary to main- 
tain a standard of living, which we call the social surplus, can 
be converted into capital to carry on production without 
pinching individuals or placing upon them the necessity of 
saving. Looked at from the individual standpoint, saving 
is still necessary to provide for a "rainy day," but from the 
community standpoint, the man who saves is depriving him- 
self of some of the necessities which contribute to make him 
an efficient producer. Yet, the habit of saving has become 
a racial characteristic, and people are saving as never before, 
through insurance companies, trust companies, building and 
loan associations, real estate investments, and investments in 
stocks and bonds. 

The community living on a basis of surplus needs no longer 
depend on individual abstinence as the source of its capital. 
Efficiency and not parsimony is the characteristic for which 
the community should strive. 

TOPICS FOR CLASS DISCUSSION 

1. Why do Americans look contemptuously upon immigrants who 
maintain a low standard of Uving in order to save? 

2. What prompts the average man to save? 

3. Is it better for a man to maintain a high standard of living or to 
save by lowering his standard? 

4. Is the spender or the saver more advantageous to the community ? 

5. Is it wise to increase the amount of capital in the United States? 

6. What is the resuh of increasing capital faster than population? 



THE ORIGIN AND CHARACTER OF CAPITAL 169 

7. Is the lead pencil with which you take notes capital? 

8. Is a child's slate capital? 

9. Why do we put our money into railroads rather than pyramids ? 

10. Is money capital? 

11. Distinguish accurately between natural resources and capital. 

12. Distinguish between wealth and capital. 



CHAPTER XXII 

THE PROBLEMS OF CAPITAL 

Capital is accumulated by reserving a certain portion of 
the wealth which is produced in the community for the 
purpose of creating additional wealth. 

There are several forms which these accumulations can 
take, and in order to facilitate the discussion, capital is 
described as "circulating" or "fixed," "specialized" or 
""free." In general, the demand for capital in any field 
determines what kind of capital will be developed there. 
At one time the demand may be greater for specialized 
capital, at another time it may be greater for free capital. 

Circulating capital is capital which is destroyed by a 
single use, such as coal, food, raw materials, and the like. 
As contrasted with this, there is fixed capital which can be 
used for a considerable length of time without being destroyed. 
An example of fixed capital is found in locomotives, facto- 
ries, and dump carts. 

Then the problem may be looked at from another stand- 
point. Capital which has been molded into a form that 
can be used only for a very specialized purpose is called 
specialized capital. Specialization may be very great or 
only moderately so, but when capital has been put in a form 
that can be used for a comparatively few things, it is special- 
ized. For example, a press which will stamp out twenty- 
dollar gold pieces is a very extreme form of specialization 
because there are only a half dozen places in the world where 
twenty-dollar gold pieces are stamped. A crane built to 
carry fifty tons is a less specialized form of capital. While 

170 



THE PROBLEMS OF CAPITAL 1 71 

there are, relatively speaking, few places where such an ap- 
pliance is used, it can be employed in a greater number of 
places than the coin press. The crane may be of service in 
any one of several industries, while the coin press can be 
used in but one. 

In contrast with capital which is thus specialized, capital 
is said to be free when it exists in a form that may be used in 
a large number of industries. A piece of pig iron is free 
capital. It can be converted into carriage springs, bicycle 
pedals, drills, car wheels, or any other form of capital into 
which iron enters. The ordinary machinist's lathe is some- 
what specialized, but it would be considered almost free in 
contrast with a lathe made to turn a 10,000-pound shaft. It 
is, of course, impossible in many cases to say whether the 
goods are free or specialized because the two classes merge 
into one another, but the distinction can always be made 
that when the capital is usable in only a few ways, it is 
specialized. When, on the other hand, it is usable in many 
ways, it is free. 

One of the great problems in the development of capital is 
to determine how much capital should be utilized in the form 
of fixed and how much in the form of circulating capital. 
Wealth in the form of fixed capital cannot of course be 
converted into circulating capital, and the progress of the 
community may be seriously hampered by the lack of a 
sufficient amount of circulating capital. In the early part of 
the nineteenth century an enormous amount of wealth was 
converted into canals, a form of fixed, specialized capital. 
Far more canals were built than the traffic warranted, and 
the wealth sunk in many of the canal projects was completely 
lost. One of the causes of the panic of 1873 was the con- 
version of a large amount of the wealth of the commu- 
nity into fixed capital in the form of railroads. As it turned 
out, too great a proportion of the country's wealth was put 
into this form of fixed capital, and a business tie-up resulted. 

In the same way, if a large portion of the capital is turned 



172 TEXT-BOOK OF ECONOMICS 

into specialized goods, it is clear that industry will suffer 
because of a lack of capital which can be diverted into the 
kinds of production that will meet the changing demands of 
a modern society. The mobility of capital in the United 
States, that is, its ability to change from one use to another, 
is shown by the growth of the automobile industry. In 1900 
the industry was insignificant. In 1908 it was employing a 
capital of $250,000,000 and 80,000 employees. So long as 
capital is sufficiently mobile to flow readily from one in- 
dustry to another, — or so long as there is sufficient wealth 
to form capital for new industries, — the industrial condi- 
tions are, from the standpoint of this factor in production, 
excellent. 

Another of the interesting problems presented by the 
growth of capital in modern society is that of utilizing, for 
the benefit of all, the savings of individuals. How are such 
savings converted into circulating or fixed capital? 

A child receives a five-dollar gold piece from its grand- 
mother and takes it home in great glee. Acting on the 
advice of its parents, the child puts the gold piece into the 
savings bank with the implicit belief that the same five- 
dollar gold piece will be returned by the bank whenever the 
demand is made upon it. But the bank is not doing business 
in that way. 

The bank acts as a loan agent. If a man wishes to start a 
shoe factory, the bank furnishes him with sufficient credit 
to secure his capital. In r2turn for this credit, the borrower 
must furnish good securities. This would-be manufacturer 
brings to the bank $100,000 worth of bonds, and deposits 
them together with his note for $50,000. The bank accepts 
the note because it is backed by this collateral of bonds and 
gives him credit on its books for $50,000. If he so desires, 
the bank gives him $50,000 in cash; but, as a rule, it is only 
credit that is demanded. 

The prospective manufacturer then rents his factory build- 
ing, installs his machinery, and hires his operatives. The 



THE PROBLEMS OF CAPITAL .173 

rent and tools are paid for by drawing checks on his 
$50,000 of credit, that is, transferring his right to part of 
this credit to those who sell him his tools and materials. The 
five dollars deposited by the child in the bank, together with 
money deposited by hundreds of others, was among the 
$250 which went to the shoe manufacturer and which he 
used at the end of the first week to pay off his men. 

But the bank does not loan the manufacturer his $50,000 
for nothing. It requires of him a promise to pay 6 per cent 
interest during the time that he retains the money on credit. 
In order to pay this 6 per cent interest, the shoe manufacturer 
at once begins to work. He buys raw material, makes shoes, 
and sells them. Thus he engages in a productive operation 
by creating utihties in economic goods. He adds to their 
value, — to the amount which people are willing to give in 
exchange for them. In the course of a year the shoe manu- 
facturer will make perhaps 10 per cent on the $50,000 
loaned by the bank, and of this 10 per cent 6 per cent is 
returned by him to the bank in payment for the $50,000 loan. 

When the child deposited the five-dollar gold piece, the 
bank agreed to pay 3 per cent interest or 15 cents a year for 
the use of this five dollars. The shoe manufacturer pays the 
bank 6 per cent or 30 cents a year for the use of the five dol- 
lars, and the bank pockets the difference, or 1 5 cents. Thus 
the bank is making 3 per cent on the transaction. 

Saving was formerly done in this way. The bank acted as 
the loan agent for any one who wished to secure money and 
who could furnish reliable securities as collateral. Its loan- 
able funds were secured from a large number of people in the 
community, each one of whom wished to invest a small 
amount of money, but no one of whom was sufficiently well 
off to be able to loan a large sum such as a manufacturer 
would require to begin business. 

There were, to be sure, cases of individuals who had saved 
considerable sums; and when Farmer Williams wished to 
build a barn, he went to Farmer Jones and borrowed $500 



174 TEXT-BOOK OF ECONOMICS 

on a mortgage. But this was an uncertain way of carrying 
on enterprises. Every community did not have a Farmer 
Jones. Besides, as industry grew, neither $500 nor $5000 
was enough to start a business. No one person wished to 
loan the large sums necessary to begin a modern business 
enterprise, even though he had them. 

To meet the contingency, in the last few years a new plan 
has been developed and perfected by which the bank is elimi- 
nated from the transaction. The shoe manufacturer decides 
to begin business, but instead of going to the bank with his 
collateral and borrowing $50,000, he incorporates his business; 
that is, he secures a charter, a board of directors is appointed, 
and stocks and bonds are issued. These stocks and bonds 
are then sold to the people in the community who wish to 
invest their money and who do not wish to engage in business 
themselves. Thus, without the intervention of the bank, 
and with the bank's profit eliminated, the business man se- 
cures his capital direct from the person who has saved it, 
and who desires to invest it. At the same time no one is 
called on to invest a large amount. A company may be 
capitalized for $10,000,000, but an individual needs to invest 
only $50 or $100 by buying a share of stock, or a bond. 

Trust companies, insurance companies, and in a limited 
sense building loan associations exercise the functions of 
the bank and act as loan agents for investors and borrowers ; 
but in recent years the corporation, by selling stocks and 
bonds and paying good rates of interest, has done away with 
all of the intermediary banking establishments and gone 
directly to the individual saver. 

It is interesting to note that the corporation stocks and 
bonds have been used as a means of overcapitalizing, or stock 
watering and investors have thus been deceived as to the 
real value of the business in which they were investing. 
This subject will be dealt with at length in the chapter on 
The Corporation and the Public. 

Another question which arises in the discussion of capital 



THE PROBLEMS OF CAPITAL 175 

is the meaning which a business man attaches to the phrase 
which he often uses, "I have a capital of $50,000." Does 
he mean that he has $50,000 in silver or greenbacks? As 
has already been pointed out, money of itself is non-produc- 
tive unless it is being used to help create utilities in goods. 
A manufacturer might pile up millions of silver dollars on 
the floor of his factory and yet no production would take 
place. 

When a man says he has a business with a capital of 
$50,000, he does not mean that he possesses $50,000, but that 
his stock of raw materials, finished goods, machines, and tools, 
together with the " good will" of the business, would exchange 
in the market for $50,000. He has not $50,000 in coin, 
and it may be that, were he sold out by the sheriff, his busi- 
ness would not bring $50,000. What he does mean is that 
if the business in good working order were to be capitalized 
to form a corporation, it could be fairly valued at $50,000. 

As modern production is so intimately connected with the 
proper maintenance and administration of the capital of the 
community, it is of vital importance that the capital should 
be efficiently handled and utilized to the greatest advantage 
of all concerned. 

Capital is developed as the result of increased efficiency. 
It is brought together in a corporate form by a great aggre- 
gation of small investments. Production is intimately con- 
nected with the capital, which must be mobile and responsive 
to new demands. Too much emphasis cannot be laid on the 
necessity of managing capital in the interest of the community 
and not of individuals. 

TOPICS FOR CLASS DISCUSSION 

1. Why is capital accumulated? 

2. Is circulating or fixed capital greater in amount? 

3. Is specialized or free capital more abundant in the community? 

4. What is the effect of converting a large amount of wealth into 
speciahzed capital? 



176 TEXT-BOOK OF ECONOMICS 

5. How long does any piece of capital goods last? 

6. What effect has the change in demand from bicycle^ to automo- 
biles had upon capital? 

7. What will be the effect upon capital of borrowing large amounts 
contributed directly through the purchase of stocks and bonds? 

8. What effect has the purchase of stocks and bonds by numerous 
individuals on the public? 



CHAPTER XXIII 

THE ORGANIZER, THE MANAGER, AND THE BOSS 

One of America's distinctive contributions to the indus- 
trial world is the organizer. To be sure, Europe has her 
organizers, and Germany and England and France, chiefly, 
but in the number and capacity of its organizers, and in 
their industrial achievements, America far surpasses any 
other country of the world. 

The organizer is the commander-in-chief of his particular 
industry. It is not his duty to do any of the detail work, 
either with his hands or his brain. His occupation consists 
in seeing that the great outlines of the industry as he has 
planned them are placed for execution in the hands of com- 
petent men. The organizer mobilizes the forces of labor 
and capital and applies them to the natural resources in a 
way which will produce the largest return for the smallest 
outlay. It is the duty of the organizer to superintend only 
the big things and leave the detail for others. One of the 
leading men in American industry is credited with saying 
that he never did anything that he could hire some one else 
to do ; in other words, only the big jobs were big enough for 
his organizing ability. The smaller ones could be taken 
care of by his subordinates. 

It is the duty of the organizer to see that he has efficient 
forces to execute his ideas. This is one of the characteristics 
of a successful organizer, — it is likewise a characteristic 
of any other leader of men. He must be a sufficient reader 
of character to select subordinates who will see things as he 
does, and after selecting them, he must have sufficient person- 
N 177 



1^8 TEXT-BOOK OF ECONOMICS 

ality to impress his will upon his subordinates. In short, 
the organizer must, first of all, be a leader of men He must 
have the ability to work with and direct others, and get them 
to do the things as he wishes them done. 

The successful organizer must be more or less intimately 
acquainted with the detail of the various industrial processes 
which fall under his control, and he must be on the lookout 
constantly for new processes which will give him an advan- 
tage in method over his competitors. One of the leading 
manufacturers of electrical machinery is particularly noted 
for his ability to judge of the character and possible outcome 
of an invention in his line. Not only does he constantly 
invent himself, but he is careful to keep in touch with all the 
new inventions pertaining to electricity, and to know which 
of these he needs and which he can afford to let some one 
else get. 

Another thing which the organizer must know intimately 
is the condition of the markets. Before he places an article 
before the people and asks them to accept it, he must have 
some conception of what the public wants. In the first 
place, he must know what kinds of goods are in demand ; and 
in the second place he must know where this demand is most 
active, — that is, where prices are highest. 

In addition to producing cheaply the article which he is 
manufacturing, by an efficient organization of his labor and 
capital, the organizer must be acquainted with the best means 
of shipping and disposing of his manufactured products. 

As already stated, the organizer is peculiarly American, 
and to the presence in America of a large group of efficient 
organizers we owe many things, the most important of which, 
perhaps, are the examples of large-scale production which 
have been furnished in the steel, oil, and beef industries, 
and the use of by-products in industry, which is an essential 
feature of large-scale production. 

This development of large-scale production and the utili- 
zation of by-products are so extensive in the large industries 



THE ORGANIZER, MANAGER, AND BOSS 179 

of the country and have so cheapened the cost of producing 
commodities that, were it not for the presence of monopoly 
and special privilege, the community would be enabled to get 
many articles of consumption at a price which would repre- 
sent but a fraction of the cost of the same commodity twenty 
years ago. 

The organizer is important in any community of which 
he may be a part. The community revolves about him and 
he not uncommonly occupies the position of a feudal baron 
of the Middle Ages. Indeed, in many parts of the country 
to-day, the organizer, or the company of which the organizer 
is the head, will own the factories, the mines, the houses in 
which the workers live, the stores in which the workers buy 
their provisions ; in short, all of the economic fortunes of the 
population are controlled by one man or by his company. 
This unique position of the organizer has led in the past to 
many abuses which the laws have been seeking for some time 
to correct. Among these abuses were the company store 
and the payment of wages in scrip, which was good to ex- 
change for goods only at the company's stores. In this way 
the money which was paid out in wages to the employees was 
at once taken back at a profit in the company's stores. Both 
of these proceedings are now generally illegal. 

The organizer has been a distinctive factor in the develop- 
ment of our present industrial progress, and as such he is of 
vital importance to the community. Is it possible for us to 
insure a continuance of the supply of organizers, and if there 
is such a possibility, what efforts are we making to incur the 
continuance of a supply ? It is probably fair to say that we 
have made no intelligent effort along these lines. Our public 
school system as a whole is calculated to develop school- 
teachers and clerks rather than captains of industry, and only 
in the last few years have the colleges made any appreciable 
effort to furnish a course of training that will put a man in 
a position to assist in the industrial world. In fact, we are 
still in practically the same position that we occupied fifty 



l8o TEXT-BOOK OF ECONOMICS 

years ago, when the organizer rose from the position of office 
boy, or some similar position, gradually learned the business 
as he went along, and succeeded in becoming an organizer 
of industry. 

Organizers "happen" now as they did then. Granted the 
importance of the organizer in industry, it would seem that 
our institutions should be so shaped as to place before the 
children of each generation an equal opportunity for the kind 
of an education that will lead to the development of organ- 
izing ability in those who possess the aptitude or desire to 
develop it. 

The manager occupies a position in industry analogous to 
that occupied by the colonel in the army. It is the duty of 
the organizer to map out plans for carrying on the general 
business policy of the concern with which he is connected. 
The manager is the person who executes the plans made by 
the organizer. It is therefore necessary that the manager be 
in close touch with the details of the business. The organizer 
may have under his control a dozen cotton mills stretching 
from Massachusetts to Georgia. He has his office in New 
York and from it he directs the policy of the whole group of 
mills, sometimes visiting them, but generally leaving the 
details of the work at each mill to the discretion of his man- 
ager, who has full charge in each locality and is responsible 
to the organizer only. 

To be sure, there are many business operations in the United 
ytates in which the same man acts as organizer and manager ; 
but the tendency in modern industry is toward a centrally 
located office having control over a large number of plants 
scattered through the country. At the central office is an 
organizer having charge of the general policy of the corpora- 
tion. At each of the plants is a manager whose work centers 
around that one plant. The manager, like the organizer, 
is of comparatively recent origin. Fifty years ago, in most 
industries, the head of the industry came in close daily con- 
tact with the wage workers. He called them by their first 



THE ORGANIZER, MANAGER, AND BOSS l8l 

names and worked with them ; but the growth of large-scale 
production and the concentration of industry in a compara- 
tively few hands have made it impossible for the organizer 
or business head to know anything of the details of his opera- 
tions or of his workers. He deals in large projects, leaving 
to the manager the problems that arise from the detail work- 
ings of the plants and the contact with the wage workers. 

The manager is the man who sees that the productive ma- 
chine is kept running. He understands the machinery in 
his particular branch of industry and he understands the 
labor market, and he brings the wage worker into contact 
with the machinery, his object being to secure the greatest 
possible production from the combination of the wage worker 
and machinery. 

The position of the manager is one not so hard to fill as 
that of the organizer. He is not required to initiate new 
projects nor outline large operations, but rather to work 
out and develop the outline of the particular branch of 
the industry to which he has been assigned. It is not neces- 
sary that he should have had so broad a business training 
or that he should acquire so extensive a knowledge of men 
and things as the organizer. What he does need is a highly 
developed technical knowledge of his line of business, backed 
by a general knowledge of trade conditions and the mechanism 
of production. 

In America we have developed a high type of manager. 
Beginning with the public school system, as it has grown up 
in some of the newer parts of the country, and ending with 
the technical courses in our colleges, an opportunity is pre- 
sented for the development of those traits which lead to the 
growth of a group of successful managers. Until recently, 
in addition to those opportunities for education, our industries 
have presented a great opportunity for wage workers to rise 
from the ranks and become managers, and even organizers 
under exceptional conditions. 

The recent changes in modern industry are unfavorable 



1 82 TEXT-BOOK OF ECONOMICS 

to the development of additional organizers, but favorable 
to the development of additional managers. Not only must 
the organizer of to-day have ability to group various branches 
of production, to select his subordinates, and to market 
his products to the greatest advantage, but he must stand 
out against large corporations in some lines and monopolies 
in others, and every year the large corporations become 
larger and the monopolies more absolute. This means 
that every year great organizers are forced "into the trust." 
That is, they go out of business as independent organizers 
and accept positions as managers under the trust. This 
trust is controlled by an organizer at its head, who is called 
a president; a number of vice presidents, who, in many 
cases, perform the functions of organizers; and a group 
of business managers, each one of whom has charge of a 
particular operation or factory or mill. 

Passing now to a discussion of the boss, we come upon 
one of the most interesting features of the development of 
labor organization in America. The " bosses," or " foremen," 
as they are called in the factories, stand in the position of 
the captains, lieutenants, and corporals of a military organiza- 
tion, and in their origin they are typically American. 

The boss occupies the same position in our modern system 
that the overseer did in the slave system. It is his duty to see 
that none of the men loaf, and that they do their work effi- 
ciently. The manager provides the outlines of the work 
to be done, and the boss sees that the men apply them- 
selves to the work and fill in the outline. He is responsible 
for getting the largest amount of labor possible from the group 
of wage workers under his charge. 

The immigrant comes over from Europe, ignorant of the 
language, of the kind of work done, and of the methods 
used. He is placed under a boss, who tells him what to 
work at and shows him how to work. Then the boss must 
see that the work is of the necessary standard of quality 
and of the required amount. 



THE ORGANIZER, MANAGER, AND BOSS 183 

The boss does not use the whip to keep his laborers at 
work, but he does employ various means which are even more 
effective. He puts his men on a system of " piece work " ; 
that is, they are paid so much per piece of work that they 
do, instead of so much per hour. For example, a man may 
solder the bottom to the frame of a lantern at three cents 
per lantern or thirty cents per hour. If he works by the 
hour, there is no incentive to work hard, but if by the piece, 
he will do his best to solder at least ten lanterns an hour, 
and perhaps eleven or twelve, for each additional one means 
an addition to the pay envelope. Then it is tacitly under- 
stood that a man must solder ten lanterns an hour or leave. 
So the piece-work system sets a rapid standard and places 
every incentive before the wage worker to exceed that 
standard. 

The pace maker is another means of increasing the prod- 
uct of a gang of workers. The boss selects a strong man 
and pays him a little more than the wages paid the other 
men, on condition that this man shall set a rapid pace. He 
carries so many hods per hour, or wheels so many wheel- 
barrows per hour, and all of the other workers in the gang 
are required to keep pace with him or lose their positions. 
This system, while resulting in a larger production, bears 
very hard on the weaker members of the "gang." 

In addition to these two methods, the boss uses talk, 
sometimes persuasive, sometimes abusive, but always 
directed toward the one object of getting a larger product 
per man employed. 

The manager and the organizer require an extensive 
experience and great executive ability. The boss requires 
only the ability to get along with his men and persuade 
them or compel them to work hard. The Irish made the 
first bosseSj and they are still the typical ones, although 
Italians and Slavs are now taking positions as bosses over 
their own countrymen. 

So much for the three types of leaders in American in- 



184 TEXT-BOOK OF ECONOMICS 

dustry. The next chapter will be devoted to a discussion 
of the men who make up the rank and file. 

TOPICS FOR CLASS DISCUSSION 

1. Is the organizer necessary to modern industry? 

2. What service does the organizer render? 

3. Is the supply of organizing abihty Hmited? If so, by what? 

4. Is the average school in America calculated to develop organizing 
ability? 

5. What would happen if all of the present organizers were suddenly 
removed from industrial life? 

6. Distinguish between the organizer and the manager. 

7. Which is of greater importance to industry? 

8. How can a supply of competent managers be maintained? 

9. Is the boss a product of education? 

10. What is the significance of the boss in industry? 

11. Contrast the duties of the manager and the boss. 

12. Of which have we the greater supply? 



CHAPTER XXIV 

THE WAGE WORKER 

The wage worker is the private in industry. Attention 
has been called to the organizer, the manager, and the boss. 
At any one time there are a handful of these men who occupy 
conspicuous positions and play great parts in our industrial 
drama, — men who are exceedingly important to the whole 
community; but where there is one organizer, there are 
a thousand wage workers, and after all it is upon them that 
the country must depend for its continued efficiency in 
production. 

No matter how clever the organizer may be, he cannot 
attend to the detail workings of the plans which he formu- 
lates. These he must leave to his subordinates, and upon 
their skill will depend the working out of the details. But 
while the subordinates can outline the details, they cannot 
execute them, so they in turn must look to the labor forces 
which they employ for the completion of the plans formu- 
lated by the organizer. The whole organization of the mod- 
ern labor force might be compared to a pyramid. At the top 
are a very few organizers, under them are a somewhat 
larger number of managers, who in turn rest on a greater 
group of bosses, and all of these three groups rest finally 
on the great base of the pyramid composed of the wage 
workers. If, therefore, the force of wage workers is ineffi- 
cient and unintelligent, the presence of organizers, managers, 
and bosses would have no effect whatever in turning out the 
products of modern industry, — the whole pyramid would 
collapse for want of a solid base. 

185 



1 86 TEXT-BOOK OF ECONOMICS 

There are, broadly speaking, two groups of wage workers, 
the skilled wage workers and the unskilled or corp.mon wage 
workers. This distinction is very generally made; but, 
nevertheless, it is almost impossible to say where the skilled 
wage worker merges into the common wage worker. In 
fact, we have come to speak of wage workers as skilled, 
semiskilled, and unskilled, thus making a third class in which 
all the workers who arc neither skilled nor common can be 
grouped. 

In general, however, we think of a skilled worker as one 
who is doing work which requires a longer or shorter period 
of apprenticeship ; or to put it in another way, a skilled wage 
worker is one who is doing work which cannot be done by 
any bystander who may be brought in. In this group are 
included such things as structural iron work, typesetting, 
carpentry, bookkeeping, puddling or rolling in steel mills, 
blacksmithing, and a host of other trades which are rather 
difficult to learn. 

The semiskilled worker is one doing work that can be 
learned with comparative ease by any newcomer who has 
ordinary intelligence and ability. Although it is hard to 
give an accurate definition of the semskilled wage worker, 
the number of men who fall into this class is very large. 
Practically all coal mining might be placed in the semi- 
skilled class, also the work of the conductor on the trolley 
car, the brakeman on the train, the mechanic's helper, 
and numerous other groups of men and women who are 
doing work which requires some little skill and intelligence 
but no particular period of apprenticeship. 

Unskilled work all are familiar with. It is the com- 
bination of a maximum of brute force with a minimum 
of intelligence. The laborer on the street, the coal heaver, 
and the ditch digger fall in this class. 

Up to this point, we have considered the groups of workers, 
the organizer, the manager, and the boss who were responsible 
for bringing land and labor together, for keeping labor 



THE WAGE WORKER 187 

efficiently organized and at work, and for providing it with 
the best methods of turning the natural resources on which 
it was engaged into the finished product desired. When 
we deal with the wage workers, skilled, semiskilled, and 
unskilled, we are dealing with the people who come into 
actual contact with the material which is being worked upon. 
Reverting again to the pyramid, we have at the bottom un- 
skilled and semiskilled labor, taking the raw materials from 
the earth; above them the skilled labor, working the raw 
materials into the finished products; above them again, 
the boss, the manager, and the organizer, directing the whole 
operation. As you ascend the scale, the number of workers 
becomes fewer, and the skill and intelligence required be- 
come greater. 

As we stated in the opening chapter, the object of 
economic thought is the production of efficiency. American 
wage workers are proverbially efficient, and this efficiency 
is based upon their independence, intelligence, adaptability 
to new work, energy and perseverance. Upon the pres- 
ence of all, or at least a large number, of these qualities 
in the working population, depends industrial success. 
Whether or not the high efficiency of the American workman 
is due to the democratic form of government under which 
he lives, and the consequent responsibility that is thrown 
upon him for taking his part in public affairs; or to the 
original quality of the colonists and subsequent immigrants 
who came to the country because of economic or religious 
troubles at home ; or because of the high standard of living 
which prevails in America, — it would be hard to determine. 
There appears to be little doubt, however, that the Ameri- 
can workman is highly efficient, and that the products of 
American industries can compete successfully in any of the 
markets of the world. 

Too much emphasis cannot be laid on the importance 
of adaptability in an industrial community. The early 
colonists found land for the clearing, shipbuilding timber, 



1 88 TEXT-BOOK OF ECONOMICS 

fishing banks, and mineral resources. They began at once 
to develop the resources at hand. In New England they 
built ships, in Virginia they raised tobacco. By using the 
resources at hand, thus adapting themselves to the new en- 
vironment, they made success out of the most adverse 
conditions. 

That old power to adapt themselves to new conditions 
still predominates in America's labor force. If it were not 
for its presence, the adoption of new processes and labor- 
saving machines would be impossible. The man who 
works well in one particular kind of a loom is not nearly 
so valuable as the man who knows enough about looms to be 
able to handle any loom efficiently, with a few days' experience. 
The first man we call immobile ; the second, adaptable. 

Another equally important element in the American labor 
force is its high degree of intelligence. A man who has 
learned to read and write and think logically makes a far 
more efficient producer than an ignorant man, particularly 
if the latter believes he is being misused. Given adapta- 
bility and intelligence in the labor force of the community, 
its industrial development will be limited only by its natural 
resources. 

The immigrant is, as a rule, an unskilled worker. The 
great influx of immigrants has therefore meant a great 
increase in the unskilled without a corresponding increase 
in the group of skilled workers. One of the great demands 
of the time is for more skilled men in all of the lines of 
industry. 

Almost every book that appears dealing with industrial 
questions from the standpoint of the wage worker emphasizes 
the fact that the men and women who are prepared to do 
unskilled or a low grade of semiskilled work have great 
difficulty in securing employment, because of the large num- 
ber of men and women, particularly women, who are not 
fitted by a training to work along some special line. On 
the other hand, skilled workers have very little difficulty 



THE WAGE WORKER 1 89 

in securing employment in almost any line of industry which 
is permanent. In fact, a perusal of the "Want Ad" column 
in any newspaper will very quickly show that it is the skilled 
and not the unskilled worker who is in demand. 

This condition of affairs is due not only to the immigrant. 
Efficient systems of apprenticeship have become obsolete 
in almost every branch of industry. This is due largely 
to the subdivision of employments, which makes it impossible 
for any worker to learn a complete operation. One man 
formerly made a pair of shoes complete. To-day in a shoe 
factory a pair of shoes passes through three hundred hands, 
no one of whom is a shoemaker. 

On the other hand, the public schools fail to give any 
training along the lines that would help the children of the 
wage worker to take up the same work in life that their parents 
have been carrying on. This failure on the part of the 
schools to provide a kind of training that will appeal to the 
working population is particularly shown in the smaller 
industrial centers all through the country. Not only do 
the parents believe that the children get no benefit from the 
schools, but the principals and superintendents are very 
frank in saying that the average boy of twelve in an in- 
dustrial town might as well leave school because he derives, 
as a rule, no benefit from staying there. 

In some cities, particularly in the Middle West, trade 
schools and manual training schools have assumed quite 
a prominent position. There is some tendency to introduce 
manual training, from the kindergarten to the high school. 
Wherever these systems have been tried, they have met with 
marvelous success ; and other sections of the country are only 
prevented from copying these systems by the lack of funds, 
and the conservatism and the opposition of the body of the 
population to a change in the old system which has been 
used for a generation. 

This ' question of developing and maintaining a group of 
skilled wage workers has been further dealt with in the dis- 



190 TEXT-BOOK OF ECONOMICS 

cussion of the effect of the school on the labor force. At 
this point it is sufficient to point out the importance of the 
skilled worker, the fact that skill is not developed as it once 
was by the apprenticeship system, and that we must there- 
fore fall back for this training on some improvement in our 
present school system. 

While the problem of the unskilled wage worker is in a 
way unconnected with the problem of the skilled wage 
worker, in no way is it entirely separable from it. One 
hundred years ago, a product, the shoe for example, was 
made by one man who did all the work. He was a skilled 
man and the work was skilled throughout. The modern shoe 
factory has revolutionized this. Where one man was 
originally responsible for making the shoe, at the present 
time three hundred men take part in its manufacture, and 
the process is so subdivided by the introduction of machinery 
that only a small part of the work is done by highly paid 
skilled labor. The rest of the process is carried out by un- 
skilled men with the aid of machinery. Thus, while under 
the old system both the simple and the complex operations 
in the manufacture of a shoe were performed by a highly paid 
skilled man, under the modern system, with its division of 
labor, the skilled man performs only the skilled operation, 
and the unskilled operations are performed by machinery 
operated by low-paid semiskilled labor. 

This change in industry has resulted in dividing off the 
skilled from the unskilled and the semiskilled wage workers. 
The change has been facilitated by the entrance into the 
country of a large number of immigrants, unable to speak 
the language, and hence unfitted for anything except un- 
skilled work. The consequence is that the immigrants, 
in some cases skilled men in their own country, come to 
America and work, using only their physical strength. 

The problem of the unskilled wage worker is becoming 
an acute one. This country has been remarkably fortunate 
in securing its unskilled labor force at the time when it was 



THE WAGE WORKER I91 

most needed. For example, when the railway building 
was started, in the middle of the nineteenth century, the 
Irish famine and the persecutions in Germany sent to this 
country vast numbers of very desirable and very intelligent 
immigrants who did the railway building. When it was 
desired to extend the railway system across the continent, 
the Chinese were brought over in great numbers, and it is 
said that, had it not been for their help, it would have been 
almost impossible to complete the transcontinental lines 
at that time. The industrial movement, which began in 
the '8o's and has continued ever since, has been supplied with 
common labor by an unprecedented flow of immigrants from 
Austria-Hungary and south central Europe. 

Of itself, America has no supply of unskilled wage workers. 
American-born children, with their school education and 
higher standards, do not as a rule enter the ranks of the un- 
skilled, but take up semiskilled or skilled work. This is 
particularly true in the large cities where the business schools 
are turning thousands of boys and girls into stenographers 
and bookkeepers. Even the immigrant who arrives here very 
shortly graduates from the common labor force. Twenty 
years ago, the people sang, "Paddy on the railroad," be- 
cause then railroad hands were Irishmen. To-day the 
Irishman no longer lays the track. He has become a con- 
ductor or engineer, or he has gone into the city and taken up 
politics for his occupation, and the Italians and Slavs now do 
the track-laying, often with an Irish boss. The children 
of these Slavs and Italians, becoming famihar with Ameri- 
can customs, and particularly with the American language, 
will take up occupations which pay better than work on 
the railroad, and some other men must then be called 
upon to supply the deficiency. Thus the unskilled labor 
force must be constantly recruited from outside of the 
country. 

This process of immigration and its economic bearing has 
been discussed in another chapter. Here it is necessary 



192 



TEXT-BOOK OF ECONOMICS 



merely to point out the fact that for our supply of unskilled 
wage workers we have depended on outside countries for the 
past century. 

There is one other factor to be considered, namely, the 
relation between the unskilled worker and the machine. 
We have harnessed electricity and steam, but human energy 
will be used to dig ditches just so long as it costs less than 
the steam and electricity. 

This is clearly shown by the results of labor troubles. 
Labor will be minutely subdivided until one semiskilled 
man is performing some mechanical operation and receiving 
a low wage for the work. Then there is a strike, men are 
scarce, and the semiskilled man's mechanical work is per- 
formed by a machine, invented for the purpose. When 
labor conditions become normal, the manager discovers 
that the machine does the work cheaper or better, or both, 
than the man formerly did, and it replaces the man for good. 

The demand for unskilled men will be constant and large 
so long as it is cheaper to pay them wages than it is to 
make a machine to do their work. When the supply of 
unskilled labor nears exhaustion, and the wages paid to 
unskilled men therefore rise above the cost of machinery, 
the unskilled worker in many industries will become ob- 
solete. 



TOPICS FOR CLASS DISCUSSION 

1. What is the most significant fact regarding the wage worker iti 
modern life? 

2. What is the relation between our school system and the wage 
worker? 

3. What does the average worker secure for the part which he plays 
in production? 

4. What is the relation between the wage worker and the organizer? 
The manager? The boss? 

5. What part of the burden of production falls on the wage worker? 



THE WAGE WORKER 193 

6. What portion of the benefits of production does the wage worker 
receive ? 

7. To what extent is the wage worker dependent on modern industry 
for his livelihood? 

8. What has the panic of 1907-1908 shown regarding the position 
of the average wage worker? 



CHAPTER XXV 

THE DEVELOPMENT OF LABOR COOPERATION 

Among primitive savages, each man works for himself, 
and every man's hand, generally speaking, is against his 
neighbor. In other v^ords, the savage competes with all 
the other savages for his living. 

Modern society is founded, not on a basis of competition, 
but of cooperation. Each person helps directly or in- 
directly every other person in the community and in return 
is directly or indirectly helped by them. What remains 
is the form of competition and some of its dogma, but in 
reality, competition has given place to cooperation. 

As has already been pointed out, modern labor is very 
minutely subdivided; that is, each person who works has 
a small task, which with the small tasks allotted to several 
thousand other persons combines to form a great enterprise. 
The portion of the work which falls to any one individual 
is so small that it is not possible for him or her to say that 
his or her existence could continue without the cooperation 
of the rest. 

In primitive society men work together to raise a stone 
or to kill a bear. Each man helps the other by performing 
a like part of the same operation. There is as yet no task 
assigned to definite individuals. This stage is described 
as simple cooperation. 

Simple cooperation is at best unsatisfactory. Some men 
like to do one thing better than another, hence the develop- 
ment of the second stage in labor cooperation as a division 
of employments. In this stage, one man kills the game, 
another builds boats, while the women carry on agriculture 

194 



THE DEVELOPMENT OF LABOR COOPERATION 195 

or weave cloth. Then the products of the various members 
of the community are exchanged. In this stage of society- 
each individual produces a finished product and is, to a 
certain extent, dependent upon other individuals to exchange 
his finished product for the finished products which they 
are producing. 

The next stage in the development of labor cooperation 
is known as division of labor. Instead of one man going to 
the woods, felling a tree, hewing it into lumber, and making 
a house with it, several men go into the woods, one man chops 
at the tree, another saws at it, while a third and a fourth cut 
it up into logs, load it on a wagon, and haul it to the sawmill. 
In this case several men are cooperating, but each is per- 
forming a different part of the same task. 

The fourth stage, represented by modern society, is known 
as complex division of labor. In this stage not only do men 
perform each his part of a large task, but the task itself 
is subdivided by what is called specialization in industry. 
The man who comes to the woods provides himself with 
an ax, which was manufactured in an establishment em- 
ploying 500 people, each of whom had a part in the making 
of the ax. As a body, therefore, these 500 people have 
contributed one unit, the ax, to the cutting of the tree, 
but each one of the 500 persons has contributed only a small 
portion of the work necessary to provide the ax. Instead 
of having a village blacksmith make a tool to assist in lumber- 
ing, 500 people cooperate and make the tool. Each one 
does a different thing, and the result of this complex division 
of labor is an ax. 

The groups which produced the saw, the wagon, the 
clothing, and the other essentials in the lumbering operation 
were likewise composed of a number of individuals who 
cooperated to provide one part of the process of lumbering, 
and therefore assisted production by means of complex 
division of labor. 

In the time of Abraham Lincoln, one man made nails, 



IC)6 TEXT-BOOK OF ECONOMICS 

with a hammer, on an anvil. This was a case of division of 
employments. The man had the whole process of nail 
making, and he carried it on from the beginning to the end. 
To-day one hundred men, with the aid of machinery, co- 
operate to make nails in a factory, and while one man in 
i860 made one nail, one hundred men in 1900 make one 
hundred pounds of nails. 

This cooperation in slightly different forms is carried 
through all of the processes of the modern business world. 
Twenty-five years ago, if a run was started on a bank, the 
bank was allowed to fail, although it might be perfectly sol- 
vent at the time. To-day, if a run is begun on a bank, and the 
bank is solvent, all of the other banks in the community will 
join together and supply the funds necessary to pay the 
depositors who are clamoring for their money. In this 
way the bank is tided over an emergency. Bankers generally 
have learned that the failure of one bank hurts all of the 
banks, and they, therefore, refuse to allow it to go down. 

In the same way, manufacturers, wholesalers, and mer- 
chants cooperate to maintain and further their interests. 
An unfriendly act to one of a group of wholesalers is re- 
garded by the group as an unfriendly act to all and is treated 
accordingly. The retail grocers' associations of the various 
towns and cities act in a way that will result in protection 
for all of the retail grocers. The trust is nothing more than 
a specialized form of cooperation. 

Through cooperation of labor, goods are produced more 
cheaply and better in qaahty than when individuals do the 
work. The persons who are cooperating learn intimately 
the several tasks which they have to perform. They can 
therefore do their work much more effectively than if they 
were assigned to a task which involved a large number of 
separate operations. The hundred workers in a shoe 
factory acquire the capacity to produce shoes much more 
readily than the individual shoemaker who makes a whole shoe. 

One of the great advantages of cooperation is that it 



THE DEVELOPMENT OF LABOR COOPERATION 197 

makes possible the use of machinery. When an involved 
operation, such, for example, as the making of shoes, has 
been subdivided into forty or fifty separate operations, 
certain portions of the rougher work can be done more quickly 
and more cheaply by machinery than by human hands. 
Inventive genius is brought to bear and labor-saving ma- 
chinery is developed to take the place of human energy. 
The sewing machine, stitching through heavy leather, makes 
a better and far more speedy seam than that of the indi- 
vidual hand worker. 

The effect of cooperation is to supply to each member of 
the community a greater amount of economic goods than 
he or she could possibly secure if no cooperation existed. 

With these apparent advantages of cooperation, however, 
come certain disadvantages. Like all other institutions, it 
frequently forces members of the community to do things 
against their wills. Men cooperate to-day, not so much 
because they want to, as because they have to. A man in 
the modern city cannot possibly obtain anything to eat 
or wear, unless by begging, without performing some service 
which is desired by another person and which the other 
person is willing to pay for in money. This money can then 
be exchanged and the wants of the worker supplied. 

So long as men decide to live together in communities, 
cooperation is necessary for the good of all concerned. It 
results, through a high specialization of machinery and skill, 
in a greatly increased and wonderfully cheapened product, 
and, if its full benefits are secured, cooperation will result in 
leisure for those who engage in it. 

For successful cooperation, there are certain essentials, 
of which the most important are : — 

I. Confidence in members of the group. If one person 
is to cooperate with others, he must have faith that the 
others are willing and anxious to cooperate with him and 
that they will do their share, as he is doing his, to make 
the cooperation successful. 



1 98 TEXT-BOOK OF ECONOMICS 

2. Honesty, which is the complement of confidence. If 
the community is to cooperate with a man, if must know 
him to be honest. Once let his honesty be doubted, and 
the cooperation with him must be unsatisfactory, because 
it cannot be carried on in a spirit of good faith. 

3. Willingness to give up individual liberty. In order 
to cooperate the direction of the operation must be given 
to one individual. This individual may be selected by 
a majority of the group, but with the defects in human nature, 
which are encountered in any group, such a system will 
inevitably result in forcing some to do things which they 
do not desire to do. While this can be reduced to a minimum, 
it must always be present in cooperative societies, and the 
persons who cooperate must recognize the fact that the good 
social results secured from cooperation are such as to justify 
a slight personal inconvenience in the loss of perfect inde- 
pendence. 

4. Ability and willingness to specialize. As has been 
pointed out, in order to insure successful cooperation, one 
man must do one thing, another man another thing, and these 
things must both be of a character that will conduce to the 
greatest good of the group which is cooperating. 

5. Steadiness in work and consistency in effort. Men 
are valueless in a cooperative society unless they can be 
depended upon to do their share regularly and consistently. 

6. Ability and willingness to do efficient work. The 
example of one man doing good work will lead those cooper- 
ating with him to do better work, while one indifferent or 
incapable worker will influence a whole group to do less 
effective work. 

While there are other essentials for successful cooperation, 
these are perhaps the most important ones. In modern 
cooperative society they are therefore the ones that should 
be most emphasized in attempts to create efficiency through 
the development of a more advanced and more desirable 
spirit of cooperation. 



THE DEVELOPMENT OF LABOR COOPERATIONS 199 



TOPICS FOR CLASS DISCUSSION 

1. What is the relation between labor cooperation and economic 
progress ? 

2. Discuss the importance of labor cooperation in securing increased 
production. 

3. What kinds of benefits are derived from labor cooperation? 

4. What is the nature of the burdens that labor cooperation imposes? 

5. Who reaps the benefits of labor cooperation? 

6. Who bears the burdens of labor cooperation? 

7. Is cooperation increasing or decreasing in extent? 

8. Is labor cooperation more or less important to society than it was 
ten years ago ? 

9. Can the burdens of cooperation be so distributed as to bear less 
harshly on any one group? 

10. What is the relation between labor cooperation and large-scale 
production ? 

11. What is the relation between labor cooperation and specialization 
in industry? 

12. Is modern labor cooperation voluntary? 



CHAPTER XXVI 

THE FACTORY SYSTEM 

The factory system in America is one of the distinct 
products of the nineteenth century. At the close of the 
eighteenth century a domestic system of manufacturing 
prevailed throughout the United States. 

In order to insure her monopoly of manufactured products, 
England had used every effort to prevent the colonies from 
developing any industries other than those vi^hich resulted 
in raw products. England's policy was to have her colonies 
produce raw materials, ship them to England, and take in 
return the manufactured products which England created 
from these raw materials. 

To preserve this monopoly of manufacturing, a law was 
passed toward the end of the eighteenth century making it 
an offense, punishable by a year's imprisonment and a fine of 
$1000, to put on board a vessel for exportation any "machine, 
engine, tool, press, paper, utensil or implement, or any part 
thereof, which now or hereafter may be used in the woolen, 
cotton, or silk manufacture." These provisions were rather 
strictly enforced, and for a considerable time after the Rev- 
olution the American colonies had great difficulty in secur- 
ing any models on which to construct the various kinds of 
machinery needed in the development of the textile industry. 
To overcome the difficulty Americans began to invent their 
own machines. 

A factory is variously defined. Carroll D. Wright says : 
"A factory is an establishment where several workmen are 



THE FACTORY SYSTEM 20I 

collected for the purpose of obtaining greater and cheaper 
conveniences for labor than they could procure individually 
at their homes." If this definition is accepted, a factory 
is a specialized form of labor cooperation, a central point 
where labor can most conveniently assemble and cooperate. 

In contrast with the factory system is the domestic system, 
which was worked out more completely in England than in 
America. Writing in 1724, Daniel Defoe says: "The 
land was divided into small enclosures, from two acres to 
six or seven each, seldom more, every three or four pieces of 
land having a house belonging to them, hardly a house stand- 
ing out of speaking distance from another. We could see 
at every house a tentee and on almost every tentee a piece 
of cloth or kersie or shallon. At every considerable house 
there was a manufactory." The householder thus had an 
industry upon which he depended for his livelihood together 
with a small strip of land from which he could secure a great 
many of the necessary items which entered into his house- 
hold budget, and it is notable that Defoe closes his state- 
ment with the words, "Not a beggar to be seen or an idle 
person." 

The factory system necessitated an abandonment of the 
small farm and the assembling of the population in cities. 
Also with the factory system has come a complex division 
of labor and a specialization in industry which make all 
parts of the world interdependent for their products. 

The central force of the factory system is the application 
of mechanical power to mechanical appliances which take 
the place of human strength in the manufacturing of prod- 
ucts. The specialization of these appliances in the form 
of labor-saving machinery dispenses with a large number 
of workers, who are thus free to develop new industries. 
The record of the nineteenth century is one long history of 
the replacement of men by machinery and the development 
of new industries by the men thus replaced. 

Half of the population is to-day engaged in occupations 



202 TEXT-BOOK OF ECONOMICS 

that had no existence or that were not even dreamed of at 
the close of the Revolution. It is estimated, for example, 
that two and a half millions of people are directly or indirectly 
dependent upon the railroads of the country. Railroads 
are a product of the last half of the nineteenth century. 

In 1792, by the invention of the cotton gin, Eli Whitney 
contributed tremendously toward the development of the 
factory system. Up to that time cotton had been used by 
the rich only, because of the great expense of separating the 
seed from the fiber. Whitney's invention made cheap cotton 
possible, and cheap cotton meant an enormously increased 
consumption. In 1830 the value of the products of cot- 
ton manufacture was $22,000,000, while in 1900 it was 
$339,000,000, an increase of 1500 per cent. 

In 1814 a factory was set up at Waltham, Mass., 
which, so far as known, was the first to combine all of the 
processes from the working over of the raw material to the 
turning out of the finished product, under one roof. The 
first essential to the factory system was mechanical power; 
the second was division of labor and labor-saving machinery ; 
and the third, the control by one person of all of the processes 
from the raw to the finished product. 

During the nineteenth century, many industries have been 
changed from a domestic basis to a factory basis. Three 
generations ago the shoemaker traveled from house to house 
and made up the shoes for the family, or had a small shop 
to which the family came and ordered their shoes. To-day 
factories with payrolls of $10,000 a week turn out shoes at 
low prices and send them to all parts of the world. 

Some idea of the advantage of the factory system over a 
system of home industry will be gotten from the following 
illustration, prepared by the United States Department of 
Labor, relative to the manufacture of one hundred pairs of 
"Men's medium-grade, calf, welt, lace shoes, single soles, 
soft box toes." The first column represents the conditions 
in 1863 of domestic manufacturing. The second column 



THE FACTORY SYSTEM 



203 



represents the conditions in 1895 of a thorough development 
of the factory system. 

1863 1895 

Different operations performed ......... 73 173 

Different workmen employed i 371 

Time of work |^°"^^, '^^i 234 

Immutes .... 40 36.3 

Labor cost $457.9164 $59.5461 

One of the most surprising things about the table is the 
reduction of the labor cost from $457 to $59. The number 
of persons working on the shoes has increased from i to 371, 
and at the same time the total labor cost has decreased 800 
per cent. With this reduction in the labor cost, there has, of 
course, been a great increase in the cost of tools and ma- 
chinery. 

It is even more lately that underclothing, stockings, and 
even outer clothing w^ere made in the homes. To-day there 
are firms in the country v^hich turn out 10,000 dozen pairs of 
hosiery each week, — hosiery of every conceivable size, shape, 
texture, and color. There are clothing factories in which 
cloth, started as a bale on the fifth floor, comes out on the 
first floor in the form of coats, trousers, vests, and overcoats. 

In the country districts people still can fruit for family 
consumption during the winter. But fruit, vegetables, fish, 
and meats are now successfully canned in factories at a cost 
far below that of the housewife for the same work, and if the 
processes are properly guarded, in a far more cleanly and 
satisfactory manner. 

Breakfast foods, bread, crackers, cakes, and cereal products 
generally are made on a great scale, in factories centrally 
located, and shipped hundreds of miles to consumers. This 
industry is one of comparatively modern development. 

The beef-packing industry has been developed on a factory 
scale since about the middle of the nineteenth century. To- 
day the Middle West supplies the entire country with meat 
and ships many of its products abroad. 



204 TEXT-BOOK OF ECONOMICS 

The factory system means a decrease in the number of 
establishments, a large increase in the amount of capital in- 
vested, a lesser relative increase in the number of wage earners 
employed, and a greatly increased production. For example, 
in 1840, there were 1240 establishments manufacturing 
cotton goods. In 1900 there were 973 establishments, but 
the capital invested in cotton goods increased from 
$51,000,000 in 1840 to $460,000,000 in 1900; the number 
of wage earners increased from 72,000 to 297,000; and the 
amount of product from $46,000,000 to $339,000,000. 

Examples of this same relative increase might be secured 
from nearly every industry in the United States. 

On the whole, the factory system, like the system of large- 
scale production, which will be discussed later, is advanta- 
geous to the community, because it provides a greater amount 
of economic goods, but the individual or domestic producer 
is as powerless in competition with the factory system as the 
naked savage is against a Catling gun. Persons who live in 
a community where the factor}^ system exists must abide by 
the conditions which the factory system imposes. That 
some of these conditions are injurious, as at present found, is 
unquestioned. For example, the employment of young 
children in factories is certainly detrimental. The dust, 
high temperature, and lack of ventilation in some factories 
is detrimental to all the operatives in them. The machinery, 
when improperly guarded or wholly unguarded, is dangerous 
to life and limb. The congested populations of cities, 
resulting in part from the factory system, present one of the 
great problems of modern times. 

All of these things are, however, incidents to the factory 
system and not essential parts of it, and they can be as com- 
pletely eliminated from it as scale can be eliminated from an 
apple tree ; but if they are permitted to remain, they will be 
as serious to the community at large as uncared-for scale is to 
the apple orchard. 



THE FACTORY SYSTEM 205 



TOPICS FOR CLASS DISCUSSION 

1. What has the factory system meant to society? 

2. What are the leading causes of the development of the factory 
system ? 

3. Who receives the greatest benefits from the factory system? 

4. What are the chief evils of the factory system ? 

5. Can the evils of the factory system be separated from it? If so, 
how? 

6. Upon what group or groups do the burdens of the factory system 
fall? 

7. What changes would distribute these burdens more equitably? 

8. Was the factory system inevitable? 

9. Are there any ways in which the factory system can be super- 
seded ? 

ID. Has the increased amount of goods produced under the factory 
system made up for the loss in individuality which has been the lot 
of many? 

II. Outline the economic effects upon society of the factory system. 



CHAPTER XXVII 

INVENTIONS 

(a) Inventions and Industry 

Inventions and mechanical discoveries have made pos- 
sible modern industry. Without the inventions of the last 
one hundred and fifty years, men would still be working 
singly and inefficiently in an attempt to supply food, cloth- 
ing, and shelter for themselves and for those dependent on 
them. 

Inventions can be classed in three groups, — those applying 
power to industry, those which result in developing transpor- 
tation, and those furnishing labor-saving machinery. 

Before any of the other inventions could be successful 
power must be applied to industry. Man's strength is 
infinitesimal. Some outside force must be brought in to 
make the wheels go around. If industry is to develop, the 
turning, lifting, hauling, and carrying must be done, not by 
man, but by steam or electricity. 

Putting aside the early and unimportant applications of 
water and air power to industry, the first great step forward 
was taken when steam was discovered and applied as an 
industrial factor. Out of the use of coal and the application of 
steam to industry have come almost all of the transportation 
and labor-saving devices. The nineteenth century saw the most 
important step thus far taken, — the development of electric- 
ity. The end of the coal fields was already in sight and the 
possibility of securing power through some other means had 
become a vital problem when it was found that electricity 

ao6 



INVENTIONS 



207 



could be generated from water power and carried to consider- 
able distances for commercial uses. 

This discovery and the uses to which it has since been put 
have brought electricity forward as the power of the future. 
Its cheapness and efficiency makes its use in modern industry 
indispensable. Steam-driven machinery will of necessity 
predominate for many years to come, but unless there is a 
change in present tendencies, more industry will be put on 
an electrical basis each year. The development which is 
most needed is a device for carrying the electric current over 
great distances without the heavy losses incident to present 
methods. 

After it had been discovered that the wheels of industry 
could be driven more cheaply and efficiently by mechanical 
forces than by human labor, another necessity arose. Com- 
modities must be sent from one part of the country to an- 
other. The cooperation of modern society would be impos- 
sible without transportation. Grain could not be grown in 
the fields of the West nor could iron be manufactured in 
Pittsburg. All industry must be localized where there is no 
transportation. The development of the railway, the tele- 
phone, the telegraph, the trolley car, and the automobile on a 
commercial basis have given men a greater amount of control 
over environing conditions. Transportation makes it pos- 
sible to annihilate space and carry commodities from a 
central point of production and market them more cheaply 
than they can be produced in the locality. 

The third group of inventions, including those of labor-sav- 
ing machinery, has been more highly developed in the United 
States than in any other country. The Yankee is noted for 
doing nothing by hand that can be done more cheaply or 
quickly by machinery. He uses his brains twice and his 
muscles once, trying always to make power work for him, 
instead of attempting to do the work with his own limited 
amount of energy and strength. The result has been a great 
increase in the number of labor-saving devices produced. 



208 TEXT-BOOK OF ECONOMICS 

Fifty years ago heavy masses of iron and lumber were 
lifted and carried by human muscles. To-day an electric 
crane is used to do the heavy lifting and carrying. 

Any one who enters a steel mill is impressed with the fact 
that machinery is doing the work and man is only present in 
the capacity of a directing power. He neither lifts nor 
carries. The machinery does it all. 

When Benjamin Franklin printed his Almanac, each page 
had to be pressed against the type by means of a hand press. 
To-day a roll of paper goes into one end of a machine and 
comes out at the other printed in one or several colors, cut 
to the desired size, and folded. 

In all directions, man has conquered his environment and 
made his life more regular and pleasant by having brute 
force replaced by steam or electricity. 

Modern industry is built on inventions. Without inven- 
tions the modern cooperative community would be im- 
possible. Men have learned that, working together with the 
aid of machinery, they can produce far more than they could 
working separately without machinery's aid. Civilization in the 
twentieth century means thorough schooling in this funda- 
mental principle. Machinery is a slave, willing and docile 
if handled by the right master. The more work that is done 
by the slave the less need be done by human beings. 

Inventions have thus revolutionized industry and changed 
it from a basis of individual work to a basis of social coopera- 
tion. The whole world has been knit closely together by the 
necessity for economic interchanges. Modern invention has 
turned chaos into unity and made communities interdepend- 
ent. From interdependence and cooperation come com- 
mon understanding and good feeling. 

(b) Inventions and the Home 

The effect of inventions on the home is no less striking 
and important than their effect upon industry. Inventions 



INVENTIONS 209 

may affect the home directly or indirectly. The introduction 
of improved washing soap that removes dirt more easily 
from the clothes and thus lightens the task of washing affects 
the home directly by making the work in the home easier. 
The invention of machinery which will make stockings in a 
factory more easily and cheaply than they can be made at 
home with knitting needles affects the home indirectly by 
taking work out of the home and putting it in the fac- 
tory. 

The modern audience melts with pity at the description 
of the Indian woman carrying the baggage and the children, 
digging the ground, and doing the other menial work inci- 
dent to the life of the Indians. It is easy to see that the 
Indian woman was required to do the drudgery. It is 
difficult to see that exactly the same thing is required of the 
woman in modern society. 

The average woman, that is, the woman who is not able to 
keep a servant, spends her life in drudgery. She must wait 
upon and do the bidding of three Furies, — cleaning, cook- 
ing, and sewing. Men go out to work ; they see new faces 
and new things; they have excitement and change. Their 
work is exhilarating and their lives, at least to some extent, 
eventful. To the woman who is required to do housework, 
one day is like another for three hundred and sixty-five days 
in the year. She tends to the fire, she washes dishes, she 
sweeps and dusts ; but the fire never ceases to need tending, 
the dishes never cease to need cleaning, and the socks never 
cease to need mending. The woman apparently accom- 
plishes nothing. Her tasks are monotonous and endless. 
She never finishes. Hence comes the old rhyme : — 

" A man's work is from sun to sun, 
But a woman's work is never done." 

Perhaps this picture is too black. Those who are living 
to-day with the improvements and inventions that have come 
into general use will deny that woman's life is so purposeless 



2IO TEXT-BOOK OF ECONOMICS 

and monotonous as the statement in the last paragraph would 
seem to imply. It is true that every year the improvements 
that society is making tend to make her life less monotonous 
and more eventful and purposeful. 

The carpet sweeper has replaced the broom in many 
thousands of homes and has obviated much hard work and 
the raising of much unnecessary dust with its consequent 
discomforts. 

Improved methods of carpet cleaning and floor cleaning 
by compressed air devices have relieved the housewife of 
some of the disagreeable tasks which formerly fell to her lot. 
These two devices are not as yet generally employed, but 
they are coming into more common use every day. 

The washing machine, substituting a motion of the arms 
and shoulders for the motion of the small of the back, which 
is necessary in working over a washboard, has materially 
lightened the burden of the woman who washes. It is also 
an aid because boiling water can be used in the washing 
machine, as the water there does not come in contact with the 
hands. The invention of improved washing powders and 
washing soaps which remove the dirt more quickly and easily, 
and the perfection of laundry systems which will make it pos- 
sible to have some of the heavy work done at a laundry 
instead of at home, form other important steps in the lighten- 
ing of the toil of home makers. 

Perhaps the most important element in facilitating cooking 
has been the perfection of the stove. For those who cooked 
over an open fire, baking was all but impossible. The stove 
permits baking and therefore enlarges the diet which the 
family may enjoy, and it greatly facilitates the work of cook- 
ing by adding conveniences which the open fire did not 
provide. 

The use of gas and electric stoves for cooking in the sum- 
mer time is becoming fairly general in the cities. The ease 
with which the stoves can be lighted and put out, the absence 
of heat, and the cleanliness attendant upon the use of gas and 



INVENTIONS 211 

electricity are all items in making these improvements im- 
portant in lightening housework. 

But when all is said there is still the old problem of dish 
washing to face. Dishes get dirty at every meal and they 
must be washed in preparation for the next meal. The 
process is a never ending one, and an invention which will 
make it unnecessary will be a boon to all housewives. 
Whether the change is made by having dishes of paper or 
some other cheap substance which can be destroyed after 
every meal, or whether it will be made in some other equally 
effective way, is unimportant. The change should be made, 
and it will in the course of progress. 

The last half century has taken from the home a great 
amount of the cooking work which formerly fell to the house- 
wife. The preparation of breakfast foods in factories, the 
baking of bread and rolls in large bakeries, the canning of 
fruits and vegetables, and the preparation of meats has 
meant that less work need be done at home. Every year more 
of it is put on a basis of factory cooperation. 

Every year three quarters of a million of sewing machines 
are manufactured and placed in American households. The 
advent of the sewing machine, the steel needle, and the cheap 
pin have transformed this branch of the housewife's work 
until it has become almost easy. The invention of holeproof 
socks will eventually do away with much of the darning. 
The making in factories of clothing renders it unnecessary 
for the housewife to exert herself in this direction. 

The path of progress is clear. There is no more reason 
why the woman in modern civilization should scrub and cook 
and darn and dust than there is why these things should be 
done by men. The development of improved machinery 
and the growth of labor-saving devices of all kinds will 
finally obviate the necessity of doing these things each day 
in each home through the land. Cooperation, which we 
are slowly learning to greet as a friend, will overcome the 



212 TEXT-BOOK OF ECONOMICS 

drudgery and make the life of the woman as enjoyable and 
eventful as that of the man. 



TOPICS FOR CLASS DISCUSSION 

1. What is the importance of inventions to society? 

2. What is the importance of inventions to industry? 

3. Where do the benefits of inventions go? 

4. Are inventions encouraged by the present patent law? 

5. What is the most effectual way of encouraging inventors? 

6. Is there still room for inventions in industry? 

7. What effects have inventions had upon the home ? 

8. Discuss the relation between industrial inventions and the home. 

9. Along what lines should new industrial inventions be made? 
10. Along what lines should inventions affecting the home be de- 
veloped ? 



CHAPTER XXVIII 

LARGE-SCALE PRODUCTION 

Large-scale production is an indefinite term and in 
reality is merely relative. A process that would be classed 
as large-scale production in one generation would not be so 
classed in the next because of improved methods ; and further, 
it is impossible to say when small-scale production ceases 
and large-scale production commences in any given case. 
It is, however, possible to broadly define large-scale produc- 
tion as production which is carried on with sufficient capital 
to enable the producers to employ all of the most modern 
appliances and methods to facilitate and cheapen production. 

Perhaps this definition conveys a vague impression and 
can best be illustrated by an actual instance. Iron ore was 
discovered in the Lake Superior region when the iron in- 
dustry of the country was already centered at Pittsburg. 
Instead of moving the industry from Pittsburg, the coal 
supply, to the Great Lakes, the iron supply, the manu- 
facturers of iron chose to transport the iron ore to the coal 
district. 

The great problem was therefore the cheap transporta- 
tion of the iron ore to Pittsburg. Steamboats were em- 
ployed to carry the ore down the lakes from the Lake Su- 
perior region to a point near Pittsburg, and the ore was 
unloaded from the boats with hand tools such as wheel- 
barrows and shovels. Such a method would be characterized 
as small-scale production. 

In contrast with this method of twenty-five years ago, 
there is the modern system of large-scak production. To- 

213 



214 TEXT-BOOK OF ECONOMICS 

day the ore is dug from some of the ore fields with a steam 
shovel, just as dirt is dug out of a railroad cut. The steam 
shovel throws the ore on the cars, which are hauled to the 
lake side and the contents emptied into a high ore wharf. 
From this wharf, the iron ore is dropped through chutes 
into the hold of the ore ships. In all of these processes no 
muscular energy has been devoted to lifting a single pound 
of the iron ore. All of this work has been done by mechanical 
means. 

The ore vessel proceeds to the lower lake ports, where 
special electric machinery operates huge grab buckets 
which drop into the hold of the ship, grab from six to ten 
tons of ore at once, and carry it to the cars waiting to convey 
it to Pittsburg. By means of these grabs working on a 
modern ship, ten thousand tons of ore have been transferred 
from the vessel to the cars in six hours. The process of un- 
loading the ore reduces the cost to the phenomenal sum of 
two cents a ton, a price inconceivable to the small-scale 
producer, performing the work by hand labor. 

But this series of mechanical appliances was not put in 
operation for nothing. The unloading plant itself cost a 
quarter of a million dollars. A small-scale producer of iron 
would not have so much money in his entire plant, but in 
modern large-scale production a firm is able to invest in one 
of its tools $250,000, and by being able to do this, the cost 
of the product is materially reduced. 

Exactly the same thing is true in all of the processes in a 
modern steel mill. On going into a department, one is im- 
pressed with the fact that all is machinery. There are a 
dozen men scattered around the room, but the five or ten 
ton ingots of steel are sent through the rolls, reduced to the 
required size, cut, finished, and delivered on to the cars to 
be carried to other departments of the mills, — all without 
the intervention of any muscular force. 

The individual or corporation who is in the position to 
utilize methods and appliances which will reduce the cost 



LARGE-SCALE PRODUCTION 21 5 

of production to a minimum is in a position to carry on 
large-scale production. 

Large-scale production is of comparatively modern de- 
velopment. It has been developed during the last quarter 
of the nineteenth century because the great aggregations of 
capital have made possible the installation of the mechanical 
appliances on which large-scale production so intimately 
depends. 

Iron and steel industries are not alone in adopting large- 
scale production. It has spread to the Standard Oil Com- 
pany, sugar-refining companies, beef packers, biscuit and 
bread bakers, makers of electrical appliances, makers of 
locomotives, and, indeed, to practically all of the leading 
industries in the country. 

Large-scale production means a centralization of larger 
amounts of capital, of more wage workers, and of a greater 
product in fewer and fewer establishments. Instances 
showing this development can be picked from the census 
tables almost at random. For example, the starch indus- 
try had in 1850 a capital of $692,000; it employed 694 wage 
earners and produced $1,261,000 worth of product in 146 
establishments. By 1870 the capital had increased to 
$2,741,000, the number of wage workers to 2072, the product 
to $5,994,000, and the number of establishments to 195. 
Here begins the era of large-scale production, and in 1900, 
thirty years later, while the amount of capital invested was 
$11,671,000, the number of wage workers employed 2655, 
and the amount of the product $9,232,000, the number of 
establishments had decreased to 124. 

The same thing is brought out in the case of the slaugh- 
tering and packing industry. In 1880 the capital invested 
in this field was $49,419,000, the number of wage workers 
employed 27,000, the value of the product $303,562,000. 
In 1900 the capital invested was $189,198,000, the number 
of wage workers 68,000, the amount of product, $785,532,000. 
In this case the value of the product in 1900 was more than 



2l6 TEXT-BOOK OF ECONOMICS 

double that in 1880, and yet the increase in the number of 
establishments during this period of twenty years was from 
872 to 921, or only 5 per cent. 

The conditions in the iron industry are particularly in- 
teresting, for there large-scale production has been brought 
to its highest perfection. In 1870 the production of pig 
iron employed $56,145,000 in capital and 27,000 wage 
earners. The value of the product was $69,640,000 and 
the number of establishments engaged in the industry, 386. 
While there was a steady increase in the amount of capital 
and the value of the product, the number of wage earners 
was 41,000 in 1880, 33,000 in 1890, and 39,000 in 1900, 
showing that large-scale production in the pig iron business 
is being carried on with less human, brute strength. The 
number of establishments was 341 in 1880, 304 in 1890, and 
224 in 1900, or a little more than half the number that there 
were in 1870. The capital invested was $148,226,000, or 
three times the amount in 1870, and the value of the product 
was $226,823,000, or three times the value of 1870. 

Numerous other industries which have developed large- 
scale production might be cited to show a decrease in the 
number of establishments, and a small increase in the num- 
ber of wage workers, side by side with a vast growth in 
capital and in the value of the product. 

Aside from the advantages derived through utilization of 
superior machinery, another most important advantage of 
large-scale production is the possibility which it presents to 
the producer of controlling the product from the time it is 
raw material in its natural state until it leaves his hands a 
finished or semifinished product. 

The control which may be exercised in this way is per- 
haps best illustrated in the development of the Carnegie 
Steel Company, Up to the time that Mr. Carnegie took 
the matter in hand, the raw material (ore and coke) was 
under one control, the manufacture of the pig iron under 
another control, and the manufacture of the finished product 



LARGE-SCALE PRODUCTION 217 

under still a third control. The result was instability in 
prices and at times great difficulty in securing raw material. 
To obviate this difficulty, Mr. Carnegie combined his own 
works with the H. C. Frick Coal and Coke Company, thus 
securing a large supply of the best coal and the largest coke 
works in the Connellsville region. The Frick Company 
supplied the Carnegie works with coke practically at cost, 
thus eliminating the profits on coke, which were an important 
item to competitors. 

Mr. Carnegie's next move was to secure possession of 
extensive ore fields in the lake region. To make this control 
of the greatest value, the next step was to secure possession 
of the means of transporting the ore to the mills at Pittsburg. 
This was made possible by securing the control of the Pitts- 
burg Steamboat and Steamship Company, which operates 
eleven steamships and two tugboats, and of the Pittsburg 
and Lake Erie Railroad Company, running from the Lakes 
to Pittsburg. These lines, thoroughly equipped and in some 
cases rebuilt, carried ore for the Carnegie works at the phe- 
nomenal rate of one mill per ton mile. 

This series of combinations made the Carnegie works 
independent of fluctuating prices and assured them a con- 
stant supply of raw material at cost, thus giving them the 
control of their product from the time it left the ore beds or 
the coal mines to the time when it was loaded by them on 
the cars as a semifinished or finished product. 

From these illustrations it will readily be seen how valu- 
able it is to the producer to be able to control both raw 
material and the processes of transportation as well as the 
immediate processes of the transformation of the raw ma- 
terial to a finished product. 

The chief causes of the development in large-scale pro- 
duction are : — 

1. The inventions of machinery and mechanical devices 
to take the place of human muscular power. 

2. The application of steam to industry. This is an 



2l8 TEXT-BOOK OF ECONOMICS 

essential part of the development of inventions and me- 
chanical appliances, because mechanical appliances would 
be useless without some kind of a power to drive them. 
In this application of steam to industry is included the 
development of the steamboat and the railroad and the 
various kinds of factory machinery which have played so 
large a part in industrial development. 

3. The development of labor-saving machinery. While 
falling more or less under the first two headings, this third 
group is in a measure distinctive because, while in many 
countries power is applied to industry, in no country per 
haps has the labor-saving machinery been so highly de~ 
veloped as in the United States. 

4. The development through immigration of a large un- 
skilled labor force. Great numbers of immigrant laborers 
began to come to the United States in the middle of the nine- 
teenth century, and, with the exception of a few intermittent 
periods, immigrants have been coming in large numbers 
ever since. The building of railroads, the development of 
manufacturing, in fact, the growth of most American indus- 
tries, have been carried on by this cheap foreign labor. 

All of these factors combined have developed a transpor- 
tation system without which the large-scale production of 
the country would be impossible. For example, without 
improved methods of packing and rapid freight transpor- 
tation, it would not be possible to produce the meat that 
Chicago sends all over the world. Without cheap trans- 
portation the fruit grown in the West would not be sent to 
the East to feed the manufacturing population. 

Large-scale production is dependent for its existence 
primarily upon mechanical power and mechanical in- 
genuity. It is a growth in business organization that owes 
its existence to the presence of ingenuity and organizing 
ability in the labor force. 



LARGE-SCALE PRODUCTION 219 



TOPICS FOR CLASS DISCUSSION 

1. Outline the chief factors which have made large-scale production 
possible. 

2. What effect have inventions had on large-scale production? 

3. What is the relation between large-scale production and mo- 
nopolies? 

4. Discuss the chief advantages of large-scale production. 

5. What group in the community benefits most from large-scale pro- 
duction ? 

6. Discuss the chief disadvantages of large-scale production. 

7. Upon what group do these burdens rest most heavily? 

8. Are these disadvantages an integral part of, or are they merely 
incidental to, large-scale production? 

9. Is the tendency toward smaller or larger productive units? Why? 

10. Could modern society exist without large-scale production? 

11. Discuss the economic effects on China of introducing a system 
of large-scale production. 



CHAPTER XXIX 

THE UTILIZATION OF BY-PRODUCTS 

By-products are the waste of industry. Webster defines 
waste as "that which is of no value; worthless remnants, 
refuse, especially the refuse of cotton, silk, or the like." In 
modern industry profits are made through the utilization of 
that which was formerly thrown away. 

Any one riding through the hard coal fields will recollect 
the great black mountains of culm. For years the hard coal 
was broken up, the larger sizes screened out and sent to 
market, and the refuse thrown on the culm dump. Through 
the perfection of a plan for consuming small or "steam" 
sizes of coal, it has become possible to utilize, not only the 
chestnut coal, but pea, buckwheat, and "dust." The latter 
is so fine that the separate pieces of coal are barely per- 
ceptible. In order to secure these steam sizes, the culm 
dumps are being washed and screened. In some cases, it 
is said that these piles of "waste," or, as they are now called, 
by-products, are often worth more than the well-nigh ex- 
hausted coal mines from which they have been dug. 

It is not always wise to avoid by-products, but it is always 
wise to use them. The progress of a country may be assured 
or impaired as its producers utilize the waste products of 
industry. These products may be useless to the person 
who produces them, in fact, this is often the case; but they 
can be utilized by some one. As a matter of fact, there 
should be no organic waste from any industry. 

The presence of organic waste is an indication that the 
industry has not been developed to its highest possibilities. 



THE UTILIZATION OF BY-PRODUCTS 221 

Some people have even gone so far as to say that whereas 
the consumption of soap and the number of books circu- 
lated through the public libraries are ordinarily taken as a 
mark of the advance of civilization, the true measure of 
our development along industrial lines is the use made of 
the waste materials of industry and housekeeping. 

In the development of by-product utilization, chemistry 
has always played a leading part. It has come to be the 
intellect of industrial development. In speaking of the 
work of chemistry in this direction, Lord Playfair says : "The 
dregs of port wine carefully rejected by the port wine drinker 
in decanting his favorite beverage are taken by him in the 
morning as Seidlitz powders to remove the effects of his 
debauch. The offal of the streets and the washings of coal 
gas reappear carefully preserved in the lady's smelling bottle 
or are used by her to flavor her blanc mange for her friends." 

There are several notable instances in which the use of 
by-products has been developed to a surprising extent. 
For example, slag, or waste from iron furnaces, has been 
experimented upon and used in numerous ways. The im- 
portance of some method of utilizing the slag may be gathered 
from the statement that it costs about two and a half million 
dollars annually to remove the slag from the iron furnaces 
of England. 

From granulated slag, bricks are made which can be 
heated to the decomposing point of carbonate of lime. These 
bricks are used chiefly for lining chimneys and lime kilns. 
The Russians have developed a slag brick which is very 
strong and requires less mortar than stone. 

Slag cement is made from blast-furnace slag and slacked 
lime. This use of the slag has been developed particularly 
in Alabama in connection with the recent growth of the 
iron industry there. 

One of the leading developments of the iron industry has 
been the utilization of gases created in the blast furnace to 
run various kinds of machinery. In Germany, where the 



222 TEXT-BOOK OF ECONOMICS 

most careful statistics have been compiled, it is estimated 
that the value of gas is $1.25 per ton of pig iron produced, 
or in the neighborhood of ten million dollars annually for 
the German Empire. 

In the lumber industry sawdust was formerly a waste 
product and was thrown into the streams on which the 
mills were built, clogging the water course. The limbs of 
the trees and the edgings from the boards were thrown 
away or used in the boiler for generating steam. In the 
modern sawmill larger limbs and edgings are turned into 
lath and other small lumber products. In some cases the 
sawdust is used for fuel. Elsewhere it is utilized even more 
effectively. In France it is solidified, intensely hot, in a 
hydraulic press, and made into a sohd mass which can be 
polished more highly than ebony, rosewood, or mahogany. 
In Norway acetic acid, wood naphtha, and tar are produced 
from sawdust, and in the same factory charcoal briquettes 
are manufactured and exported to the Netherlands to be 
used as fuel. In England seven or eight quarts of alcohol 
are obtained from 220 pounds of air-dried sawdust. In 
the United States large amounts of sawdust are used in the 
manufacture of clay and pottery products. 

In washing wool a large amount of the wool (about 15 
per cent in weight) is removed in the form of fat. In most 
establishments where wool is washed, this fat is run out 
and allowed to float down the streams. The census of 1900 
estimates that in this way from two to three million dollars 
is lost every year. 

Perhaps the most interesting use of by-products is pre- 
sented in the meat-packing industry. In fact, the packing 
of meat in the Middle West and shipping of it to all parts 
of the world would practically be impossible were it not for 
the system which has been developed of utilizing by-products. 

The old slaughterhouse threw out these products as 
useless. Sometimes a drove of hogs was kept in connection 
with the slaughterhouse, and they ate such parts of the offal 



THE UTILIZATION OF BY-PRODUCTS 223 

as they wished, and the rest was allowed to putrefy. Now 
and then the bones were collected and sold, and the hides 
were kept in a more or less careless fashion. In great con- 
trast with this small-scale production is the modern system 
of by-product utilization. The gray brain matter from 
calves' brains is turned into a medicine for the treatment of 
nervous diseases. From blood albumen, used by printers, 
tanners, and sugar refiners, is extracted. Bones are used 
for many purposes. Those coming from cooked meats are 
boiled, and from them fat and gelatin are extracted. The 
fat is used for soap and the gelatin for transparent coverings 
of capsules and like chemical products. Bones from the 
feet of cattle are turned into toothbrush handles, knife 
handles, chessmen, and other bone products. Knuckles 
from these bones are used in the manufacture of glue and 
fertilizer. The rib bones of the cattle are cooked, and the 
red bone marrow is extracted, and used as a medicinal 
food to increase the red corpuscles in the blood. In addition, 
bone produces bone meal, poultry food, and fertilizers. 

From the horns and hoofs several important products 
are derived. The tip of the horn is cut off and split into 
layers and flattened. These plates are used in making 
combs, brush backs, and horn buttons. Horn scrap is 
ground into fertilizer. Hoofs are sorted into three kinds. 
The white hoofs go to Japan and are made into ornaments; 
striped hoofs are made into buttons and horn ornaments; 
and black hoofs are used for the production of cyanide of 
potassium. 

From the fats glycerine is secured and used in the prepara- 
tion of soap and various toilet articles. It is interesting to 
note that glycerine was once a waste product of palm-oil 
candles. As it made a bad smell in the candles, it was ex- 
tracted from the palm oil and floated away in creeks and 
rivers. It is now estimated that some factories in this 
way were losing as much as $2000 a week, which might 
have been turned into clear profit by a little technical knowl- 



224 



TEXT-BOOK OF ECONOMICS 



edge. Until the industry was so seriously restricted, beef 
and hog fat, carefully washed and prepared, was used to 
make oleomargerine and butterine. Gelatine is a product 
of bones. About one fifth of the weight of animal bones 
consists of organic material which, when boiled out, forms 
gelatine or glue. The best gelatine is, however, secured 
from the trimmings of ox, sheep, and calf skins and scraps. 

It is perhaps fair to say that in the great packing houses 
sausage is a by-product. While it may not be true that 
sausages consist of all of the materials attributed to it by 
The Jungle, it is perhaps fair to take the estimate of 
such a staid and dignified authority as the United States 
census of 1900, from which the following description of 
sausage making comes : — 

"The manufacture of sausage brings to the packer greater 
profit for the amount of meat used than any other part of the 
hog. Sausage is made of trimmings which are the rem- 
nants of everything. Material for sausage comes from 
the ham-trimming department, from the butcher's bench 
at the market stall, from the killing room, and from the 
beef houses, particularly where the heads and hoofs are 
trimmed." If to this description we add that a large por- 
tion, estimated by some as high as 60 per cent, of the sausage 
consists of potato meal, it may rapidly be seen that the 
sausage is in reality a by-product of the meat industry. 

It might be interesting to note in passing some of the by- 
products which are the result of the slaughtering industry. 
They are as follows : — 



Gelatine 


Curled Hair 


Brewers' 


Skins 


Neats' foot 


Glue 


Bristles 


isinglass 


Wool 


oil 


Fertilizers 


Soap stock 


Glycerine from 


Intestines 


Bones 


Hair 


Hides 


tallow 


Albumen 
Blood 


Horns ' 
Hoofs 



Glands and membranes which yield 

Pepsin Thyroids Parotid substances 

Thymus Pancreatin Supravenal capsules, etc. 



THE UTILIZATION OF BY-PRODUCTS 225 

The large Western packer is able to maintain his business 
against local competition through the aid of by-product 
utilization. This is in reality the only advantage that he 
has over the local butcher, but it is an advantage of such 
great importance that the meat packers can deliver dressed 
beef at almost any place in the United States, with reason- 
ably good railroad connections, at a lower rate than the 
same beef can be dressed and prepared by the local butcher. 

Perhaps the best-known utilization of by-products has 
come with the development of the cotton-seed oil industry. 
In 1850, cotton seed was a garbage; in 1870, a fertilizer; 
in 1880, cattle food; and in 1890, table food. 

The problem of the early cotton ginner was how to get 
rid of the cotton seed. It became such a nuisance that 
laws were passed making it a punishable offense for ginners 
within certain town limits to allow cotton seed to lie around 
and rot, or to allow it to be dumped into the streams. 

By 1870, 4 per cent of the seed produced was utilized in 
the manufacture of cotton-seed oil. According to the census 
in 1900 the cotton seed was worth 13.8 per cent of the cotton 
crop, or $50,000,000, yet only 53 per cent of the cotton seed 
was being utilized. 

At first cotton seed was fed whole to stock, but later on 
it was found that it made a more valuable feed after the oil 
had been extracted. It is interesting to note that in the 
cotton-seed industry a by-product of a by-product has been 
developed to a highly valuable commercial asset. In the 
first cotton-seed mills the hulls of the seeds were removed 
from the meats and became a problem of the first impor- 
tance. Sometimes they were burned, sometimes thrown 
away; but in late years it has been discovered that these 
hulls make excellent cattle feed, and they are baled and 
shipped, bringing good prices. It has also been discovered 
that the fiber on the outside of the hull can be removed and 
made into paper stock, and this is now being done with 
considerable success. The census of 1900 presents the 
Q 



226 



TEXT-BOOK OF ECONOMICS 



following diagram to show the use of by-products of the 
cotton- seed industry, which were formerly regarded as a nui- 
sance and which now return to the country some $50,000,000 
annually. 



Cotton Seed 



Waste 



linters 



Hulls 



Meats 



Fuel 



Cotton 
batting 



Fiber 



Ashes 



I Paper 

Fertilizer Cattle feed 



Cake a 



nd meal 



Fertilizer 



Cattle feed 



Crude oil 

I 
Summer 
yellow oil 



Soap 



stock 



soap 



Water 
yellow oil 



Cotton seed 
stearin 



Butter and 
salad oils 



Summer 
white oil 



Lard and 
cottolene 



Miner's oil 



From these illustrations it will readily be understood that 
the statements made at the beginning of the chapter, to the 
effect that the nation which succeeded in utilizing all of 
the organic substances connected with its industries will in the 
long run be the most prosperous nation industrially, are lit- 
erally true and worthy of the most careful consideration. 
There is no waste. The great problem is presented, not by 
waste, but by ignorance. Industry is on a scientific basis 
only when organic substances are utilized to the greatest ad- 
vantage. Education is the foundation of science. Educa- 
tion is therefore of prime importance for successful industry. 



THE UTILIZATION OF BY-PRODUCTS 227 



TOPICS FOR CLASS DISCUSSION 

1. Discuss the importance of by-products to modern industry. 

2. What has been the chief cause of the utiHzation of by-products? 

3. What is the relation between large-scale production and the use 
of by-products? 

4. What is the relation between the use of by-products and special- 
ization in industry? 

5. Has the use of by-products been an influence in developing the 
factory system? 

6. Does the saving through by-products benefit the consumer? 

7. Does the use of by-products benefit the wage worker or the em- 
ployer? 

8. In what directions will improvements in the use of by-products 
be made? 

9. What have been the economic effects of using by-products? 



CHAPTER XXX 

THE ADVANTAGES AND DISADVANTAGES OF LARGE-SCALE 
PRODUCTION 

The heading of this chapter is perhaps misleading be- 
cause there are no real disadvantages of large-scale produc- 
tion. The disadvantages lie, not in the large-scale produc- 
tion, but in the abuse of the methods of carrying it on. 

Large-scale production is the result of centuries of ex- 
perience in the development of mechanical appliances, in 
the application of mechanical power to industry, and the 
consequent growth of man's control over nature. Large- 
scale production gives to the community in which it exists 
a larger amount of economic goods, a better gi*ade of eco- 
nomic goods, and a greater opportunity for leisure in which 
to enjoy the better things of life. 

The community in which each man produces the things 
that he needs has no surplus, and is therefore likely at any 
time to be overtaken by starvation. Not only does each 
man in such a community face this possibility, but he must 
spend all his waking hours in securing enough to maintain 
life. In a community where large-scale production pre- 
vails, the reverse is true. Through large-scale production 
men are supplied with a sufficient amount of economic 
goods to maintain a high degree of efficiency; they are 
provided with a surplus of economic goods which assists 
them in maintaining a regular consumption; and they have 
in addition sufficient leisure to enable them to develop 
abilities other than those necessary to supply their physical 
wants. 

228 



PROBLEMS OF LARGE-SCALE PRODUCTION 229 

Large-scale production is an essential feature in modern 
life. Without it we would be unable to provide ourselves 
with the necessities and luxuries which we so freely enjoy. 
Ten men working together can do several times as much as 
ten men working separately. Our industrial civilization 
gains an increasing advantage with its size and the amount 
of its cooperation. 

This large-scale production is advantageous to the com- 
munity, but what are some of the specific features that 
make it of advantage? 

1. Perhaps the chief advantage of a highly developed 
system of large-scale production consists in securing the 
raw material advantageously. In the chapter on Large- 
scale Production, the Carnegie Steel Company was cited as 
an instance of an enterprise in which all of the processes of 
production were controlled from the raw material in the 
mines to the finished product on the cars. The advantages 
in the stability of price and the certainty of supply under 
such a system are obvious. 

2. The utilization of by-products. Some authorities 
would place this first among the advantages of large-scale 
production, and it is such an important item that it was 
discussed separately in the last chapter. It is sufficient 
here to remark that the utilization of by-products has been 
the leading factor in building up industries like that of 
meat packing, by securing to them advantages through 
cheapening of production that could not by any possibility 
be enjoyed by small producers. 

3. The integration of industry. This was also illus- 
trated by the development of the Carnegie Steel Company. 
Instead of having the iron mined by one company, the coal 
by another, the transportation furnished by another, a 
fourth company making the pig iron, a fifth the steel, and a 
sixth the rails, all of these various processes were combined 
under one management. By this method the prbfits which 
would otherwise go to a half-dozen different companies are 



230 TEXT-BOOK OF ECONOMICS 

eliminated and the cost of production greatly lowered. 
Integration of industry is advantageous also because it 
guarantees to the manufacturer the quality of the raw product 
which he is securing. 

4. Specialization in skill and management. The small 
industry is able to pay but small wages and cannot, there- 
fore, secure the services of the best men in the market. 
When the Carnegie Steel Company saw the value of their 
famous superintendent, "Bill" Jones, they paid him $50,000 
a year, a salary equivalent to that of the President of the 
United States. Such a sum would have ruined a small 
producer, but it was one of the elements in making the 
Carnegie Steel Company, because Jones was a man of great 
ability, and the money expended for his salary came back 
many times each year in the increased efficiency of the 
works. The same thing holds true of the skilled workman. 
The producer on a large scale can afford to pay high wages 
because he is producing more cheaply, and he may therefore 
secure the best workers that are to be had, 

5. Specialization of machinery. As was pointed out in 
the case of the Carnegie Steel Company, when it became 
evident that the cost of securing Lake Superior ore would 
be decreased by installing an unloading plant at a cost of 
a quarter of a million dollars, this plant was at once in- 
stalled. Two hundred and fifty thousand dollars would 
capitalize many of the smaller companies, but for a com- 
pany producing on a large scale, it was utilized to furnish 
one of the tools of production. This specialization of ma- 
chinery greatly cheapens the cost of producing, but it is 
possible only where the resources of the concern are very 
great. 

6. Specialization in industry. The firm organized on a 
basis of large-scale production can afford to specialize to 
the extent of having one entire plant or department turn out 
a small part of the product. The branch of the industry 
devoted to this specialized work becomes skilled and par- 



PROBLEMS OF LARGE-SCALE PRODUCTION 23 1 

ticularly adapted to turning out a large product of good 
quality. The result is an increase in the amount produced, 
and a lessening of the expense of producing each article. 

7. The utilization of the best and most up-to-date patents. 
In a great many industries, such, for example, as the pro- 
duction of steel, the whole fabric rests upon certain me- 
chanical devices that have been perfected during recent 
years. The firm that is most prompt to avail itself of these 
devices and to utilize them to their full capacity is, in the 
long run, the firm which will succeed. Here, again, the 
existence of production on a large scale enables the pro- 
ducer to provide himself at almost any expense with the 
new patents which seem to be necessary. 

These are the leading advantages directly obtained from 
a system of large-scale production. As has already been 
mentioned, the system of large-scale production is essen- 
tially advantageous, and it is only through its abuse that it 
becomes otherwise. In short, the disadvantages of large- 
scale production are incidents of its growth and can readily 
be eliminated from it. Among the chief of them are the 
following : — 

1. Industry centralized in a few hands may be used to 
the detriment of the community. Thus far the develop- 
ment of large-scale production has meant the centralization 
in the hands of a small group of men of practically all of 
the industrial activities upon which the community is de- 
pendent for its existence. The opportunity thus furnished 
for corruption and the development of special privilege has 
been taken advantage of and has resulted in curtailing the 
freedom of the majority by restricting individual initiative 
in business. 

2. This centralization of control places men in such 
positions of power that they may dictate terms disadvan- 
tageous to their employees without the latter being able 
successfully to meet them. The repeated blows dealt to 
trade unions during the last few years through the instru- 



232 TEXT-BOOK OF ECONOMICS 

mentality of manufacturers' associations and employers' 
associations are the direct outcome of this centralization. 

3. The result is a tendency to lower wages, to maintain 
long shifts, and to create hard working conditions. This 
has been brought about, not so much by lowering the stand- 
ard of American workmen, as by importing immigrants, 
sometimes under contract, and putting them to work under 
distinctly un-American conditions. 

4. Manufacturing on a large scale often leads to the 
turning out of inferior products. No one man or group of 
men is responsible for the finished article. Parts are as- 
sembled from factories all over the country, and the finished 
engine, carpet sweeper, or wagon is put on the market. 
But in the operation, no one has had the whole respon- 
sibility of turning out a good piece of work in the shape of 
a finished article. No one can point with pride to the 
finished article as "my work." The result is, that instead 
of having a pride in the workmanship of the product, men 
work as cheaply and as badly as they can, so long as they 
pass the foreman's inspection and draw their pay envelope. 

5. The great cost of building competing plants makes it 
difficult to organize a company to compete with those already 
in existence. That means that, unless some artificial check 
is imposed, the large-scale producer or producers will vir- 
tually control the market. 

6. The centralization of industry causes congestion of 
population, many of the results of which are detrimental 
to the workers. Enough has already been said concerning 
the detrimental effects of city life, and it is only necessary 
here to throw emphasis on the thought that a centralization 
of industry in large units causes a corresponding centraliza- 
tion of population. 

In spite of the demands that men "get back to nature," 
it is probable that civilization will never again be carried 
on without the aid of large-scale production. The objec- 
tions to it which have just been stated are objections which 



PROBLEMS OF LARGE-SCALE PRODUCTION 



233 



can be readily met, and their causes remedied, by a judicious 
action on the part of the heads of the large enterprises, or, 
in case they fail to act, on the part of the people. 

Large-scale production makes possible the creation of 
enormous quantities of wealth at a relatively small labor 
cost. In other words, it is the means of increasing produc- 
tive efficiency, and thus securing to the individual the pos- 
sibility of additional leisure and happiness. Men have 
become too accustomed to the bath tubs, gas stoves, auto- 
mobiles, underclothing, newspapers, and other comforts of 
modern life to be persuaded to give them up. What is 
necessary is not the abolition of the system of large-scale 
production, but its organization and perfection along some 
lines, which will give to men the benefits just mentioned 
without involving the misery now incident to its continuance. 



TOPICS FOR CLASS DISCUSSION 

1. What is the chief advantage of large-scale production? 

2. What group in the community profits most by this advantage? 

3. What is the chief disadvantage of large-scale production? 

4. What group suffers most from this disadvantage? 

5. What is the effect of large-scale production on specialization in 
industry? 

6. What is the relation between inventions and large-scale pro- 
duction? 

7. What effect has large-scale production had on the producer? 

8. What effect has large-scale production had on the consumer? 

9. What effect has large-scale production had on the community ? 
10. Are the advantages derived by the public from large-scale pro- 
duction more numerous than the disadvantages? 



CHAPTER XXXI 

TENDENCIES IN BUSINESS ORGANIZATION 

Thus far the problems of business organization have been 
considered in detail, and it may be worth while at this point 
to present a group picture in order to bring out the con- 
trasts and developments of the problems and to show the 
way in which business organization is tending. 

In the realm of natural resources men are slowly learn- 
ing to let nature work for them. For years they relied 
upon water power. Then came the discovery of coal and 
the application of steam to industry, and water power was 
thrown to the wind. But coal is becoming scarce and ex- 
pensive, and with the development of electricity water 
power has again taken a prominent place as a source of 
industrial energy. As the coal supplies become fewer and 
less accessible, water power will play a more and more im- 
portant part. In this development the carrying of elec- 
tricity for long distances from the source of the generating 
power will be a leading factor. 

The days of the commercial fertilizer are not passed, but 
instead of attempting to cultivate poor land with the aid of 
commercial fertilizer, men are turning to the cultivation of 
good land with the aid of artificially supplied water and 
swamp drainage. The crop returns from these investments 
far more than justify the expenditure involved. The return 
is greater in proportion than the return secured on poor 
land with the aid of fertilizer. 

The forests of the country, ruthlessly butchered for decades, 
are being preserved and developed for the twofold purpose 

234 



TENDENCIES IN BUSINESS ORGANIZATION 235 

of checking drought and flood and providing a future timber 
supply. 

Inland water ways, neglected when the development of 
the railroad promised to forever provide an adequate trans- 
portation system, are again being resorted to because of 
their cheapness and the inability of the railroads to meet 
the traffic demands. The center of attention is the Missis- 
sippi, connecting the Great Lakes and the Middle West 
with the Panama Canal. 

It is interesting to note that, in all of these cases, the fed- 
eral government is being called upon to interfere. A 
movement is on foot to have the State of New York develop 
and sell the water power of Niagara. The United States 
government has a land reclamation office which is spending 
millions annually in irrigating arid land and draining swamp 
land. The Bureau of Forestry at Washington and the 
various State bureaus are working for the preservation and 
development of the forests. A strong agitation is on foot 
to secure from the United States government an appropria- 
tion for the deepening and safeguarding of the Mississippi 
Basin water ways. In short, as the different sections of the 
country become more and more interdependent, we see 
more and more clearly that certain enterprises upon which 
all sections depend for their development must be adminis- 
tered by the central government in the interests of all. 

Many of the enterprises are so vast in extent and the 
probability of immediate return is so questionable that 
private capital will not undertake them on a great scale. 
This is given as an additional argument why the govern- 
ment should do work like irrigating and swamp draining. 
The people of the United States believe that their natural 
resources must be preserved, and the consensus of enlightened 
opinion is that the federal government must do the work. 

One of the most significant factors in business organiza- 
tion during the last half century has been the growth in the 
size of the productive units. In 1850, 185 establishments 



236 TEXT-BOOK OF ECONOMICS 

were engaged in meat packing, and their total capital was 
$3,482,000, or $18,800 of capital for each establishment. 
In 1880 the number of establishments was 872, and the 
capital invested was $49,419,000, or $56,600 of capital per 
estabhshment. In 1900 the number of establishments had in- 
creased to 921, while the capital had increased to $189,198,000 
or $205,900 per establishment. In fifty years the average 
capital per establishment has increased eleven times. 

The same fact is as strikingly true of the production of 
pig iron. In 1870, 386 establishments were engaged in the 
production of pig iron, and their total capital was $56,145,000, 
or $145,400 per estabhshment. By 1900 the number of 
establishments had decreased to 224, but the total capital 
had increased to $148,226,000, or $661,700 per establish- 
ment. Similar figures might be cited for all of the larger 
industries to show the tendency toward an increase in the 
size of the productive units. 

All production is being conducted on a large scale. This 
insures to the producer greater efficiency and less cost in 
production, and it should insure to the consumer a cheaper 
commodity. That it has already done so to some extent 
there can be no question. That it should do so to a greater 
extent in the future is equally obvious. 

From the standpoint of labor, the most significant factor 
of business organization is the complex subdivision of em- 
ployments. The ready-made coat passes through the hands 
of two or three hundred employees in a clothing factory. 
The ready-made shoe passes through the hands of a like 
number of employees in a shoe factory. As industry evolves, 
each person has a less and less complicated task to perform; 
and when the task has been reduced to a sufficient degree 
of mechanicalness, machinery is introduced to take the 
place of the person, who either operates the machinery and 
thus greatly increases the product, or else goes to a more 
skilled task, leaving a less skilled person to work with the 
machinery. 



TENDENCIES IN BUSINESS ORGANIZATION 237 

The effects of a complex division of labor will in the long 
run be disastrous to the labor force unless with the division 
of labor comes an increase in the amount of leisure and a 
development of educational facilities that will insure an 
"all-around man." 

Not only is labor subdivided, but industry is being con- 
stantly specialized. The country blacksmith may build 
his own shop and forge. He may make his hammer, his 
drills, his chisel, and most of the other rough tools which he 
uses. He likewise manufactures bolts, washers, nuts, nails, 
and hardware of all kinds. In many country shops horse- 
shoes are still made by the blacksmith at his anvil. 

The modern blacksmith in the city buys each one of 
these articles from a different manufacturer, who has pro- 
duced them by means of a highly complex division of labor 
in a specialized factory. For example, one factory will 
make horseshoes, another horseshoe nails, a third will 
make drills, a fourth bolts and nuts, and so on. 

Under modern industrial conditions, it is inconceivable 
that one firm should produce all of the things which it needs 
in its manufacturing. As a matter of fact, the average 
machine or engine or complex tool of any description is 
not made by the man who sells it at all. He merely as- 
sembles from a great number of different places the various 
parts and puts them together and places them on the market 
as his product. 

While the trust movement has brought together a large 
number of plants under one management, the tendency of 
the trust itself is to have each plant specialize on some 
particular product. 

Next in importance to the development in the use of 
mechanical power is the invention and perfection of ma- 
chinery to do, first, the work formerly done by human 
muscles, and second, the work formerly done by human 
dexterity. 

The steam shovel, the steam plow, the steam or electric 



238 TEXT-BOOK OF ECONOMICS 

crane, and many other devices which might be mentioned 
have for their purpose the saving of human muscles. They 
do the work which was formerly done by muscular force 
far more effectively and far more cheaply. 

Labor-saving machinery takes the place of operatives 
when their tasks have become sufficiently mechanical for 
a machine to perform them. A roll of paper is placed at 
one end of an intricate machine, and from the other, at a 
rate so fast that one cannot count them, pours out a stream 
of printed, folded newspapers. In all industry labor-saving 
machinery is being used to assist in producing wealth. 

This tendency to increase the amount of machinery em- 
ployed is clearly shown by the census figures for the flour 
and grist mill industry. In 1850, there were 23,000 wage 
earners and $54,415,000 engaged in the industry, or $2360 
of capital per wage earner. By 1900 the number of wage 
earners had increased to 37,000, while the amount of capital 
had increased to $214,718,000, or $5800 of capital per wage 
worker. In the production of pig iron 27,000 men and 
$56,145,000 were engaged in 1870, that is, $2080 of capital 
per worker. In 1900, 39,000 men and $148,226,000 were 
engaged in the industry, or $3800 of capital per worker. 
In both cases the value of the product increased in about 
the same proportion as the capital. The use of mechanical 
power, developed through machinery, increased to a great 
degree the efficiency of the individual worker. 

As a result of the division of labor, specialization in in- 
dustry, and the invention of complex machinery, an interest- 
ing condition of affairs has arisen where : — 

I. A long period elapses between the production of 
economic goods and their final consumption or utilization. 
The cotton spun and woven in the Southern mills may lie 
in the warehouse of the wholesaler for six months or a year 
before it is turned into garments. Two or three months 
may elapse from the time the garments are manufactured 
until they are consumed. The steamship built in one or 



TENDENCIES IN BUSINESS ORGANIZATION 239 

two or even three years spends twenty years on the ocean 
before its usefulness disappears. 

2. Men do not produce finished goods. Under a system 
of division of employments one man made a shoe, another 
a hat, another a coat. Under a system of complex division 
of labor and specialization in industry one man polishes 
the oil cup for a locomotive which hauls grain across the 
country to be turned into flour for his table. The man no 
longer produces his own flour. There are a thousand pro- 
cesses between his oil-cup polishing and the bread which 
he eats for breakfast, yet the bread is in part the direct 
result of the polishing of the cup. The man is paid in the 
medium of exchange, money, which he uses to secure things 
which he desires to consume, but the thing which he pro- 
duces he must exchange. 

3. Men, therefore, have little pride of workmanship in 
the products which leave their hands. No one man is 
responsible for an entire product, and he cannot say "that 
work is mine" when a finished product leaves the mill or 
factory. 

With these changes, and forming the backbone of large- 
scale industry, has come the corporation, the legal creation 
which has assembled capital and labor to convert natural 
resources into usable forms of wealth. 

The corporation means a more direct connection between 
investors and the enterprise in which they are investing. 
Men are not required to put all their money into one enter- 
prise, but many scatter it over several. Large sums of 
capital can be secured by taking a small amount from many 
persons. The failure of a corporate enterprise is not dis- 
astrous to any one person, owing to the diffusion of respon- 
sibility. Through the controlling interest in stock, or through 
the control of the board of directors, a few persons can 
dictate the policy of a great number of enterprises. The 
corporation is a thing of vast possibilities. It possesses 
vast opportunities — both good and evil. The corporation 



240 TEXT-BOOK OF ECONOMICS 

may be made as dangerous under bad conditions as it is 
advantageous under good ones. 

With the government taking a greater and greater part 
in the control of natural resources, with the division of 
labor, with specialization in industry and the introduction 
of labor-saving machinery, and with the growth of a system 
of corporations wisely controlled, the business organization 
of the country tends constantly toward the production of 
an increasing amount of wealth at a decreasing cost in 
human energy and pain. 



TOPICS FOR CLASS DISCUSSION 

1. Outline the development of business organization up to the pres- 
ent time. 

2. Has the growth in business organization led or followed the growth 
in population? 

3. What is the outlook for the individual in the modern industrial 
world ? 

4. Why has the corporation played such a leading part in modern 
industrial development? 

5. Name some of the tendencies in the organization of natural re- 
sources. 

6. What changes are being made in the organization of labor? 

7. Why is the organization of capital of such importance in business 
organization ? 

8. Name some indications of increasing government activity in 
business. 

9. Point out the line that this government activity will probably 
take. 

10. What attitude should the average man in the community take 
toward business organization? 

11. What are the economic effects on the community of efficient 
business organization? 



BOOK VI 

CHAPTER XXXII 

RAILROADS AS A PUBLIC UTILITY 

The importance of transportation as a factor in pro- 
duction cannot be overemphasized. To say that the steel 
tracks connecting the Pacific with the Atlantic, the Gulf 
with the Lakes, are the great arteries of the nation by which 
its life blood circulates, is no overdrawn figure of speech. 
The United States as it now exists, with its vast domains, 
would be an impossibility without its great transportation 
system. 

In discussing production, we defined it as the creation of 
utilities of which there were four kinds. Transportation 
has a distinct relation to that kind which we designate "place 
utility." Commerce consists in taking goods from where 
they are not needed, and have little utility, to where they 
are needed and so have greater utility. This is as much 
production as the making of an ax, a machine, or a suit of 
clothes. Each of these four acts leads to the creation of 
utilities. Each adds to the sum of human enjoyment. 

In the creation of "place utilities" the railroad is now of 
first importance. Its efficiency as an agent of transportation 
was early recognized, and it was not long before it had largely 
supplanted the wagon roads, rivers, and canals, as means of 
transportation. It was during the fourth decade of the nine- 
teenth century that the use of steam brought about the wonder- 
ful transition from the old type of conveyance. The success 
and progress of railroad building was almost immediate. 
Because of its apparent great advantages the railroad was 
soon destined to supplant all earher means of transportation. 
R 241 



242 TEXT-BOOK OF ECONOMICS 

Chief among its advantages is its rapidity. It has brought 
California and Pennsylvania as close together as were Penn- 
sylvania and New England formerly. Then comes the 
question of economy. The railroads can handle freight so 
economically that the products of the Far West, though of 
great bulk, compete successfully in the far distant markets 
of Europe. It has liberated man from his dependence on 
his home supply of goods. It has made possible in this 
country our great territorial division of labor which has 
meant so much in the present industrial position of America. 
Massachusetts can devote her energy to manufacturing, 
knowing that wheat raised in distant Dakota and milled in 
Minneapolis is ever ready to feed her. The South can spend 
her energies in raising the world's largest single crop of 
cotton, knowing that her needs along other lines will not be 
neglected. x\ll this has been possible because of the wonder- 
ful growth of communication. We now have a steady, quick, 
and economical exchange of commodities for the common 
benefit of all. 

The rapid growth of railroad mileage in the United States 
has been phenomenal. In 1830 there were but twenty-three 
miles; in i860 the amount of mileage had reached over 
thirty thousand miles; by 1880 over ninety-three thousand 
miles; and by 1900 over one hundred and ninety-three 
thousand miles. This growth in railway facilities is without 
parallel in the economic history of any people. That the 
mileage has increased considerably since the last census is 
obvious to all, so that to say that two fifths of the railway 
mileage of the work is in the United States and that the total 
mileage of the United States exceeds that of all Europe by 
10 per cent or more, are conservative statements. 

Along with this increase in track mileage there has been a 
concentration of railway control hardly less marked than the 
actual increase of mileage and equally as full of significance. 
Two hundred and ten independent roads, each with a presi- 
dent, in 1883, had been consolidated into fifty or less in 1907. 



RAILROADS AS A PUBLIC UTILITY 243 

The movement toward consolidation has been so rapid that 
the day when four or five men can meet around a table and 
control all the important track mileage of the country is not 
an idle speculation. At present 60 per cent of the mileage 
of the United States is under the control of five interests. 

The significance of this concentration of control becomes 
apparent as soon as one considers the nature of the railroad 
business. Two points must be clear before one can in- 
telligently discuss the problems arising out of this concentra- 
tion. One must see clearly, first, that the railroad is by 
nature of its organization a monopoly, and second, that 
selling transportation is not analogous to selling ordinary 
commodities. Let us look into these two statements in 
greater detail. Why is the railroad a monopoly ? Primarily 
because it is a business of diminishing expense. That 
means that every railway line requires a certain amount 
of capital to be invested regardless of the volume of its 
traffic. It must have a roadbed, rails, tracks, terminal 
facilities, whether it has one locomotive or a hundred on its 
line. After this initial outlay for roadbed, terminal facilities, 
and the like, each train added to the service of the railroad 
is run at a diminishing expense. If fifty trains use the same 
road instead of twenty-five, the total expense per train is less, 
and if seventy-five were run, the pro rata expense would be 
further reduced. Moreover, the law of diminishing expense 
operates in regard to each individual train. Whether a 
freight train is composed of ten or twelve cars, an engine, 
coal car, and caboose are necessary expenses. Each freight 
car that is added to the train, of course up to a reasonable 
limit, is added at a diminishing expense. 

There is large initial expense of putting a railroad through 
any section of a country. It is, therefore, a great economic 
waste to have two lines duplicating work which can be 
handled by one. From a social point of view such an ex- 
penditure of capital is uneconomical. 

The monopoly principle which permeates all railroading 



244 TEXT-BOOK OF ECONOMICS 

asserts itself time and again in spite of legal regulation to the 
contrary. The law declares that railroads shall offer their 
services to all on equal terms. Because of the law of di- 
minishing expenses, the temptation is ever present with the 
traffic manager to accept extra business at a lower rate. His 
business instinct tells him that he can do it and still make 
money. This conflict between railroad profits on one hand, 
and public interest on the other, leads to violation of the 
principle of equal rates for equal service to all. The ultimate 
outcome of the monopoly nature of railroading has been the 
control of one territory by one railroad system. The eco- 
nomic waste existing under a system of forced competition 
has always led to the recognition of the fact that railroads 
are by nature monopolies of organization. 

Let us now consider the second point, explaining why the 
railroad business is different from any ordinary one of private 
enterprise. As one comes to see this, he must admit the 
right of the public to a voice in railroad affairs. 

The life of a nation or State depends on its avenues of 
commerce. It is the duty and function of every State to open 
up through its territories thoroughfares of trade and travel. 
For this purpose the right of the State to eminent domain has 
come down to us from time immemorial. The State can 
acquire the property of the citizens even against their wishes 
and pay for it out of the State treasury. Making adequate 
provision for avenues of commerce is clearly a function of the 
State. When the use of steam made it inevitable that rail- 
roads should be the chief avenues of commerce, the State 
often delegated its right of eminent domain to a railroad 
company, but in each case the railroad company no more 
owns the road, — that is, "right of way" — than does the 
township supervisor own the roads over which he has juris- 
diction. The real ownership remains in the State, i.e. the 
people. 

Aside from this legal aspect of the question, the supreme 
necessity for common justice would make it impossible to 



RAILROADS AS A PUBLIC UTILITY 245 

accept any other theory than that railroading, unlike many 
other activities, is peculiarly amenable to the public. The 
railroad dare not sell its product as it chooses. The railroad 
corporation is in reality a part of the civil government. Any 
other theory would place in the hands of a few private citizens 
almost absolute control of commerce, give them a taxing 
power over the public, equal, if not in excess of, the taxing 
power of the government itself, and allow a group of indi- 
viduals, through this power, the right to say which sections 
of the country shall prosper and which shall not, which indi- 
viduals shall be allowed to amass fortunes and which shall 
be doomed to poverty. This will be made more apparent 
when we come to discuss the problems arising out of the 
misuse of the railroad power. 

There are two practical respects besides the theory which 
differentiate the railroad business from the ordinary business 
of private citizens. First, the railroads would be an impos- 
sibility, did not the State allow it the "right of eminent 
domain." What right does the State allow the ordinary 
citizen comparable to it? Second, the railroads from the 
earliest times have received and depended on State aid in 
regard to finances. 

There are nineteen States in all which have advanced 
funds of considerable amounts for railroad construction. 
Some of them contracted debts ranging in the neighborhood 
of $30,000,000 for the benefit of the railroads. 

In addition to this State aid, the national government has 
been a large contributor. Much of this aid has consisted of 
grants of land from the public domain, which have amounted 
to somewhere in the neighborhood of 100,000,000 acres of 
land. So, from the standpoint of the law, the nature of the 
business, and the degree of government aid received, the 
railroads are clearly marked from the ordinary economic 
activities of the people. They are quasi-public corporations. 
The State, when it grants a charter to the railroad company, 
expects that it will reimburse itself for its services by charging 



246 TEXT-BOOK OF ECONOMICS 

tolls of all those who make use of its services. The State, 
however, imposes on the railroad in the collection of its tolls 
at least two broad restrictions. First, rates must be reason- 
able; and second, the railroads shall be open to all persons 
on equal terms. In other words, discriminations of all kinds 
are prohibited. 

The question of discriminations is one of the most serious 
evils connected with the railroads. They may be of three 
kinds: first, discriminations between persons; second, 
between places; and third, between commodities. The 
most serious discriminations are between persons. This 
happens when one shipper gets some special privilege not 
afforded to his competitor. It may be in the form of secretly 
low rates, direct rebates, or securing all cars necessary, while 
the competitor is denied them on one pretext or another. 
Whatever the plan, it is a form of special privilege and 
inevitably results in the failure of the man discriminated 
against. Competition is so keen in business to-day that no 
man can long compete against one who can get his goods to 
market more cheaply. To make the situation more grave, 
the man discriminated against is usually the small shipper, 
the one, if any, who can least afford to pay the highest rate. 
As the Interstate Commerce Commission has said in one of 
its reports, "There is probably no one thing to-day which 
does so much to force out the small operator, and build up 
trusts and monopolies, as discrimination in freight rates." 
It is a matter of general knowledge that the Standard Oil 
Company was enabled through discrimination to gain such a 
start over all its rivals as to leave it in virtual control of the 
whole field. This in turn reacted on the railroads, for the 
Standard Oil Company, as the only important shipper in its 
line, could then dictate its own rates by threatening to with- 
draw its patronage from one railroad and placing it with 
another. 

The persistence of the practice of discrimination in its 
various forms, in spite of both common and statute law, is 



RAILROADS AS A PUBLIC UTILITY 247 

due to the fact that railroading is, as has already been pointed 
out, a business of diminishing expense. This makes ever 
present an incentive on the part of the traffic manager to 
offer to take additional freight or freight in large quantities 
at lower figures than the published rates. He feels that he 
must get traffic. His road represents the locking up of vast 
sums of capital. The more traffic, the better for his road 
Each added train or freight car can be run at a lower pro- 
portionate cost. From a business standpoint, there is no 
reason why he should not sell his commodity — transpor- 
tation — at a lower rate in large quantities than in small. It 
really costs him less to render the service. Public welfare, 
crystallized into law, says, however, that he shall not. 

A second form of discrimination is that existing between 
places. This is hardly less serious than the personal form 
just discussed. It is more far-reaching in its effects, as it 
may involve whole cities, and even States or groups of 
States. Two districts may be producers of similar articles 
of commerce which are sold in competition in the one mar- 
ket. A rate discriminating in favor of the one district means 
that it shall prosper and gain control of the market in question. 
Its merchants will grow wealthy while those of its rival 
languish and their business dwindles. This has often 
happened. This place discrimination may have several 
causes. Railroads may have particular interest in the 
development of certain localities due to real estate holdings 
of their own. Again, it may arise from favoritism shown 
to a group of interests in one section of the country as op- 
posed to another. 

The most common form of this place discrimination arises 
out of the presence or absence of other competition at the 
two points competing for a common market. There are 
cases on record where the freight charge on a tub of 
butter brought 165 miles to New York was 75 cents, as 
contrasted with a charge of 30 cents when brought 1,000 
miles from Elgin, Illinois. This is but an illustration of 



248 TEXT-BOOK OF ECONOMICS 

many similar cases. This power of laying a tax at will on 
one community as opposed to another, is one of great mo- 
ment to the welfare of the people. To protect local shippers 
and to prohibit the practice of charging more for a short than 
for a long haul over the same line, Congress inserted in the 
Interstate Commerce Act of 1887 a special clause popularly 
known as the " Long and Short Haul Clause." This forbade 
charging more for a short haul than for a long haul over 
the same line and under similar circumstances. 

This clause has long been a dead letter, as the courts have 
held that whenever there is competition at one point and not 
at the other, the "circumstances" were not "similar" and 
therefore that this long and short haul clause does not 
apply. The courts have thus prevented it from curing the 
largest part of the evil that Congress designed it to reach. 

The last type of discrimination is that in connection with 
commodities. This often vitally affects the location of 
industries and also their ability to do an export business. It 
is not feasible to have a separate rate for each commodity 
that the railroad handles. To obviate this difficulty, com- 
modities are grouped together into separate freight classifica- 
tions with corresponding freight charges. A reclassification 
of any commodity may seriously affect the business inter- 
ested, by increasing the rate. This device has the same 
effect as keeping the old classification and raising the rates. 
Discrimination in commodities may have some far-reaching 
effects. Ultimately it may even cause a change of location 
of an industry. For example, the rates on flour coming 
from Minneapolis may be made so high in proportion to the 
rates on wheat coming from the West, that the Minneapolis 
millers cannot send their flour East, for it can no longer 
compete with the wheat shipped East at disproportionately 
low rates and then milled in the East. 

As a rule, the traffic manager will arrange his classifica- 
tions to get all that "the traffic will bear," but this allows a 
certain margin in which his discretion enables him to favor 



RAILROADS AS A PUBLIC UTILITY 249 

one locality or firm at the expense of others. Having seen 
the essential nature of the railroad business to be that of 
a quasi-public corporation, and having seen the grave evils 
that accompany a departure from this theory, it only remains 
for us to present the story of railroad control as exercised by 
the public in this country. 

TOPICS FOR CLASS DISCUSSION 

1. Is the railroad productive? Why? 

2. Why is transportation a greater problem in the United States than 
in Europe? 

3. How would the sudden destruction of all railroads affect the life 
of the people? 

4. If there were no railroads, could there be any "trusts"? 

5. Why are discriminations granted by the railroads? 

6. If any one rides on a pass, who pays for that ride? 



CHAPTER XXXIII 



RAILROAD CONTROL 



When one considers the direct relation that exists between 
the proper management of the railroads and the general 
prosperity of the nation, it is not surprising that steps should 
have been early taken by the government for the purpose of 
insuring to its citizens such proper management. 

Since the railroads are quasi-public, holding their charters 
and exercising the right of eminent domain under State 
sanction, they must act on the broad principle of equality 
for all before the law. The railroads must be open to every 
one on equal terms. There must be no difference, whether 
one is rich or poor, high or low, a big or a small shipper. 

Since the railroad is rendering a service to the public, it is 
entitled to a compensation. But being a common carrier, 
and at the same time a monopoly, by the nature of its organ- 
ization, the law allows the railroad to reimburse itself only 
within certain limits by charging toll of all those who use the 
common carrier. The limitation which the State thus lays 
down in the collection of tolls, is that they must be reason- 
able. The railroad is entitled to a fair return on its capital 
and a fair rate of profits. This the government recognizes, 
but not that it is entitled to any more. Unreasonably high 
rates involve a taxing power which the government has never 
intended granting to the railroads. These two fundamental 
principles — that rates must neither be discriminatory nor 
unreasonable — lie back of all laws passed to control the rail- 
roads. They form the basis of the legal relation of the State 

250 



RAILROAD CONTROL 25 1 

to its common carriers. In spite of this fact, numerous 
practices of the railroads have involved, and to a degree still 
involve, a violation of both principles. 

About 1870 the cry of extortionate rates became the com- 
mon cry of shippers all over the country, but especially in 
the great agricultural states of the Middle West. The charge 
of discriminatory rates was made in the oil regions of Ohio 
and Pennsylvania. State after State passed stringent laws 
in an endeavor to correct these growing abuses. But be- 
cause of the magnitude of the problem and also because of 
the lack of uniformity of action, the States were able to do 
little that was really effective. The agitation did, however, 
call the attention of the public in a forcible manner to the 
nature of the evils involved. An aroused public opinion 
soon paved the way for federal action which was made 
possible by the clause in the United States Constitution 
which gives Congress power to regulate interstate commerce. 
The State failed because most of the railroads were interstate 
and its jurisdiction was intrastate. 

As a final outcome, Congress appointed a commission to 
inquire into the cause and nature of the railroad abuses. 
Its report to Congress led to the passage of the Interstate 
Commerce Act of 1887, which was only possible after a bitter 
fight with the railroads. This was the first step taken to 
curb the growing power of the railroads that was even half- 
way eff'ective. Experience soon proved the original act of 
1887 weak in parts. As a result, several subsequent acts, 
framed in the light of the experience gleaned by the Inter- 
state Commerce Commission in its ceaseless endeavors to 
secure justice in railroad affairs, have been passed. Although 
the present law or combination of laws governing railroads is 
not perfect, it has wrought a marked improvement over con- 
ditions existing prior to 1887. 

The original act of 1887 applies to interstate passenger and 
freight traffic carried by railroad or railroad and water. This, 
it should be noted, eliminates, first of all, intrastate business ; 



252 



TEXT-BOOK OF ECONOMICS 



second, interstate business carried on by all water route ; and 
third, the express business. 

The provision of this first act covers in the main five im- 
portant points. First, unreasonable and extortionate rates 
were prohibited. This provision was based on the old 
English common law which had long made extortionate 
charges for transportation illegal. Second, discriminations 
between persons, places, and commodities were prohibited. 
Railroad officials making such discriminations were liable 
to fine and imprisonment. Third, all fares and rates were 
required to be printed and made public and also filed with the 
Commission. A ten days' notice was required for advancing 
rates and a three days' notice for reducing them. Fourth, 
it is unlawful for any common carrier subject to the pro- 
visions of this act to charge or receive any greater compensa- 
tion in the aggregate for the transportation of passengers or 
of like kinds of property, under substantially similar cir- 
cumstances and conditions, for a shorter than for a longer 
distance over the same line, in the same direction, the shorter 
being included within the longer distance. In case this 
should work a hardship to both local shipper and the carrier, 
the Commission was empowered to suspend this " long and 
short haul clause," as it is popularly known, whenever it 
deemed fit. The subsequent interpretation of the courts that 
wherever there is competition, either by water or rail, at cer- 
tain points and not at others, "substantially similar circum- 
stances and conditions" ao not prevail, has practically made 
this section of the law a dead letter and there are many cases 
now in which goods can be shipped a longer distance for a 
less rate than a shorter, merely because at one point the 
railroad must compete with transportation, at the second 
point, with none. Fifth, all pooling contracts between 
railroads were prohibited. 

To see that the new law was executed an Interstate Com- 
merce Commission of five members was established. This 
number has since been increased to seven. The com- 



RAILROAD CONTROL 253 

missioners are appointed by the President of the United 
States with the consent of the Senate. They are required 
by law to devote all their time and energies to the duties of 
their ofl&ce and serve for a term of six years at a salary of 
$7500. 

This Commission was given power to make investigations, 
to go over the books and papers of a carrier, and to compel 
testimony. Any investigation may be started upon the 
complaint of a shipper seeking redress for damages or at 
the will of the Commission itself. If the Commission de- 
cides that the law is being violated, it may order the carrier 
to stop its illegal practices and award damages to those who 
have suffered because of the said violations. 

These orders of the Commission are not binding, should 
the carrier against whom they are made care to disregard 
them. The only course then open to the Commission is to 
appeal to the United States Circuit Court to enforce the order 
of the Commission. Many times these United States Courts 
have failed to sustain the Commission because of the policy 
of many railroads in the past of withholding important evi- 
dence when being investigated by the Commission. This 
new evidence so withheld often put the situation in a new light, 
and the Court would render a decision contrary to that of the 
Commission. The purpose was clearly a desire to under- 
mine the authority of the Commission. 

The original law has been criticised for trying to stop 
discriminations and yet insisting that competition shall con- 
tinue by forbidding pooling. It has now become generally 
recognized that the cause lying back of all forms of dis- 
crimination is competition, and that it was unwise to pro- 
hibit "pooling," the only possible escape from competition 
except that of combination. Furthermore, the Sherman 
Anti-Trust Law of 1890 has been interpreted so as to make 
not only pooling illegal but also traffic associations. Many 
experts of the railway problem feel that legal restrictions of 
this nature are most unwise. 



254 TEXT-BOOK OF ECONOMICS 

The original act has further been criticised in giving the 
Commission the power of declaring a particular rate illegal, 
but in not granting it the power to say what the rate should 
be in the future. 

The next important piece of railroad legislation was the 
Elkins Law of 1903. This has appreciably strengthened 
the government control of railroads. It makes the corpora- 
tion, as well as the agent or officer, liable to prosecution for 
violation of the law. Deviating from the published and 
lawful rates and the acceptance as well as offer of a rebate 
or discrimination is now a misdemeanor punishable by fine. 
The penalty for deviating from the lawful rate is a fine of not 
less than $1,000 or more than $20,000 for each offense. 
The Elkins Law, moreover, empowers the Interstate Com- 
merce Commission to petition the United States Circuit 
Courts for writs of injunction whenever it believes that 
discriminations are being practiced. The law makes it "the 
duty of the several district attorneys of the United States, 
whenever the Attorney General shall direct, either of his own 
motion or upon the request of the Interstate Commerce 
Commission, to institute and prosecute the proceedings pro- 
vided for by this act." And, finally, the act aims to hasten 
the wheels of justice. An appeal from the final decree of 
the Circuit Court in all cases brought before it for the en- 
forcement of the law "will lie only to the Supreme Court 
and must be taken within sixty days from the entry thereof." 

The last step in railroad legislation is the Act of 1906. 
By this last step the Commission has gained in administrative 
power. It may now fix a maximum rate, while formerly it 
could only declare a certain rate unreasonable and there let 
it rest. Furthermore, its authority has been extended to all 
express, sleeping-car, and pipe-line companies doing an 
interstate business, and in addition it now may compel a 
uniform system of accounting for all common carriers. This 
makes possible more efficient work by the Commission and in 
addition may furnish data for further legislation in accord- 



RAILROAD CONTROL 255 

ance with the policy of publicity which seems to be gaining 
adherents on all sides. It is interesting to note the opinion 
in regard to the Act of 1906 of such an expert in railroad 
affairs as Professor Johnson. He says in a recent writing : — 

"The federal act of 1887, although amended in detail from 
time to time, was not greatly changed until 1906, when the 
so-called Hepburn Bill of the 20th of June was passed. That 
law, expressing the mature judgment of the American people, 
who had given serious thought to the question for at least 
a decade, .established in statutory form two fundamental 
principles. There were many minor provisions; but the 
two really important ones were those empowering the Inter- 
state Commerce Commission to require uniform accounting 
and to adjust railroad charges. 

"The Interstate Commission has prescribed uniform 
accounting, and the books of the railroad companies are now 
as open to the government as are the books of banking 
companies. The business of railroading has in a large 
measure ceased to be private, and has become open and 
public. This, in my judgment, is the most important pro- 
vision in the Hepburn Act." 

TOPICS FOR CLASS DISCUSSION 

1. Why does the question of the control of the railroads in the interest 
of the pubHc present especial difficulties in America? 

2. Has the government built and operated railroads successfully 
in any country ? 

3. Do you think the United States government should ovirn the rail- 
roads in this country now? 

4. Who is responsible for the present large number of railroad acci- 
dents, the railroad, the public, or the employee ? 



CHAPTER XXXIV 

THE RISE OF MODERN INDUSTRY 

In the study of the development of modern industry in this 
country four distinct stages become apparent. These we 
shall designate as the stages of home industry, of small- 
scale production, of large-scale production, and of com- 
bination. 

In thus making four divisions the writer does not wish to 
give the impression that any stage completely supersedes that 
which goes before. It merely makes a modification in the 
organization of industry, giving it a new characteristic. 
To-day in many tenement houses of New York one may still 
find cases of home industry. Though this present age of 
industry is characterized by combination (monopoly), small 
and large scale production are to be found on every hand. 
It is important, however, that one separate in his mind the 
various stages, because each stage has causes of its own and 
gives rise to distinct problems of its own. Large-scale pro- 
duction, for example, may be a public benefaction, while 
combination may be a social curse. Unless one clearly 
differentiates between these two stages of industry, it is 
impossible to do any clear thinking in regard to the problems 
to which they give rise. 

Seventy-five years ago in this country practically all arti- 
cles of consumption were made by a tool-using household 
working in their homes either in the towns or on the farm. 
A family would specialize in one line of goods, as cloth, shoes, 
candles, etc., and would exchange with its neighbors for the 

256 



THE RISE OF MODERN INDUSTRY 



257 



other necessities of life. Often a farm in those early days 
was practically an independent economic unit, making 
nearly everything consumed on the farm, from its clothes of 
homespun to its shoes, and of course all food, with the pos- 
sible exception of salt. 

The early factories grew out of these household industries. 
Naturally they were small. They supplied but a local 
market. Most of them were along the "fall line," where 
water power was abundant, and where extensive deposits of 
coal offered fuel for steam power at low cost. The period 
right on up through the Civil War and down to the '70's was 
characterized by small-scale production. 

The revival of industry following the long depression of 
1873-1879 began the modern development of large-scale 
production. The following table, from Seligman's Princi- 
ples of Economics, illustrates the great increase in large-scale 
production since 1870: — 







Number 
OF Estab- 
lishments 


Capital 


Average per Establishment 


Industries 


Number of 
Workmen 


Value of Products 




1870 


1900 


1780 


1900 


1870 


1900 


1870 


1900 


Iron and steel 
Agricultural 

implements 
Carpets and rugs 
Woolen goods 
Leather 


726 

2076 

215 
2891 

7569 


668 

715 

133 

i°3S 

1306 


$161,523 

16,780 

58.329 

34,184 

8,076 


$858,371 

221,751 
335.205 
120,180 
131,214 


103 

12 
56 
28 

5 


133 
65 

214 

67 
40 


$274,878 

25,080 
101,217 

53.755 
20,774 


$1,203,545 

141,549 
362,349 
114,425 
156,231 



From the above table it will be seen at a glance that since 
1870 the number of establishments in many representative 
industries has actually diminished, while the average capital 
invested, the number of employees, and the value of the 
product per imit have steadily risen. 

If we had consulted a similar table based on census returns 
from 1850 to 1900 inclusive, and covering all manufacturing 
plants instead of only a selected group, we should have found 



258 TEXT-BOOK OF ECONOMICS 

that, while the number of establishments and of wage earners 
increased fivefold or less during the period, the value of 
products increased thirteen fold and the amount of capital 
nineteen fold. 

Whenever such a marked change occurs in the organization 
of industry, as noted above, it is but natural to inquire into 
the basis of such a transformation. Among the most im- 
portant bases for the growth of large-scale production has 
been the vastness of the territory and the unparalleled wealth 
of natural resources of the United States. Nature has ac- 
customed the American to big things. A second basis has 
lain in the ingenuity, inventiveness, and energy of American 
labor force. The use to which Americans put huge machines 
and the readiness with which they discard them when a 
better one is to be found have revolutionized industry in this 
country. A third basis lies in the steadily expanding home 
market. The growth of railroads connecting the Gulf with 
the Lakes and the Pacific with the Atlantic no longer com- 
pels the American manufacturer to depend on a local mar- 
ket. And, furthermore, whatever one's view on the tariff 
question, there is no doubt in the mind of a student of the 
economic history of this country that from the Civil War 
until the present date tariff legislation has aided the growth 
of large-scale manufacturing in this country by shutting 
out foreign competition and reserving the home market for 
home producers. 

As the advantages of large-scale production have been 
discussed in an earlier chapter, it will merely be necessary 
to call attention to them in passing. The operation of a 
business on a large scale permits the use of expensive and 
complicated machinery, its constant employment, the minute 
division of labor, the employment of more skilled manage- 
ment, the utilization of by-products, and the economical 
purchase of raw material and marketing of the finished 
product. In addition, large-scale production permits the 
integration of industry, whereby all processes of industry, 



THE RISE OF MODERN INDUSTRY 259 

from the very crudest to the finished state, are carried on 
under one management. This was the striking characteris- 
tic of the Carnegie Steel Company before it merged into the 
United States Steel Corporation, when it owned, besides its 
mills and furnaces, its ore and fuel supply, its transportation 
lines, lake steamers, and docks. Similar illustrations of the 
integration of industry are found to-day in the Cambria 
Steel Company and in the firm of Jones and Laughlin of 
Pittsburg, two independent concerns which never entered 
the steel trust. The advantages of the integration of in- 
dustry are apparent to all. It affords great opportunity to 
reduce the cost of superintendence, to control the quality of 
raw materials in the various stages of the industry, and, above 
all, to combine profits. 

The fourth stage of industry, viz. that of combination, 
really dates from 1897, though there were some individual 
instances at a much earlier date. During the years of 1898 
to 1900 there was a veritable stampede among managers of 
business of all kinds to enter into combinations. It is re- 
corded that one hundred and forty-nine large combinations, 
with a capitalization of over $3,000,000,000, were formed 
during these years. That first in size of all combinations, 
the United States Steel Corporation, was not affected until 
1 90 1. Its importance is such that it will be separately treated 
in a subsequent chapter. 

Again, it is natural to ask, what has been the cause lying 
back of this last change in the organization of industry? 
What similarity, if there is any, exists between the antecedents 
of this modification and of that of large-scale production? 
Are they both illustrations of an evolution aiming at greater 
and greater economy of production; or is combination not 
based on any principle of the economy, but merely on a desire 
to secure monopoly control ? A consideration of this impor- 
tant distinction will now receive attention. 

If one may generalize from the motives which prompted 
the promotion of the United States Steel Corporation, he 



26o TEXT-BOOK OF ECONOMICS 

would have to declare that the desire to control prices is the 
chief incentive to combination. As one of the presidents of 
a large plant testified before the Industrial Commission, his 
company was formed "for the purpose of getting together 
and doing away with foolishness in making prices." If we 
may inquire into the inducements held out by promoters to 
those whom they would seek for their combine, we see that 
prominent among them is prospect of controlling the market 
and exacting higher prices. Often prospectuses issued to 
financiers and investors make the same claim. Dr. Meade, 
in his work on Trust Finance, reaches practically the same 
conclusion. He believes that "the control of prices, the con- 
trol of labor, and the control of the middleman were the three 
main inducements to the formation of the trust, but the great- 
est of these inducements was the control of prices." There 
seems to be little doubt but that there has not been a single 
industrial combination which was not formed with the desire 
to increase its monopoly power. Just to what extent it has 
been able to carry out its purpose, we shall see in a subse- 
quent chapter dealing with The Public and Monopoly. 

Just as the purpose of combination is monopoly, so 
the basis on which most of the large combinations rest 
is monopoly. Dr. J. Russell Smith, in his recent work, 
The Story of Iron and Steel, states: "The control of 
the steel industry lies in the control of the raw materials," 
and again, "Control of the steel trade lies in the control 
of the ore." Professor Bullock, after making an exhaust- 
ive analysis of the explanation of combination, comes 
to the conclusion that "control over hmited suppHes of 
natural resources is the strength of some combinations; 
railway discriminations, patent rights, and the shelter of 
protective duties have given material comfort and support 
to others." Mr. Havemeyer's statement before the Industrial 
Commission was that the tariff is "the mother of all trusts." 
It may be too sweeping, but his contention that the tariff 
causes over-investment in certain industries, thus producing 



THE RISE OF MODERN INDUSTRY 261 

a period of depression that results in consolidation, seems 
to carry weight. 

In trying to explain the movement toward the combination 
of industry which swept over the country in the years 1898- 
1900, one must not overlook the influence of the promoter. 

Some of the earlier combinations resulted from the spon- 
taneous efforts of the manufacturers themselves, but most of 
the combinations formed during the trust stampede were 
the result of professional promoters. Many of these men 
had an interest in getting stocks to sell. Their interest lay 
wholly in the Wall Street end of the proposition. Railroads 
had furnished the bulk of the new securities, but in 1898 
large amounts of low-priced railroad stocks were no longer 
available. Railroad building became less urgent after the 
pioneer lines had opened up the country. As a result, the 
former outlet for investment was largely closed. The pro- 
moter saw this. His opportunity lay in putting before the 
investing public industrial stocks. By 1899 confidence was 
once more restored. People became hopeful, and the pro- 
fessional financier saw that the time to strike is when the 
iron is hot. Never before had he had a more promising op- 
portunity to sell stocks. That this led to much reckless 
finance is not hard to imagine. 

The economies of large-scale production are sufficient to 
explain the transition from small-scale to large-scale. The 
change from large-scale independent production to com- 
bination rests largely, as we have just seen, on a desire to con- 
trol prices. But this was not the sole advantage to be gained 
according to the promoters. There were certain "economies 
of combination " which would ultimately make the trust the 
form of industry most fitted to survive. The trust would 
have all the "economies of large-scale production " and, in 
addition, the "economies of combination." Chief among 
these are saving in cross freight, reduced expenses for 
advertising and traveling salesmen, and ability to secure the 
most able men as managers. Economists differ as to the 



262 TEXT-BOOK OF ECONOMICS 

real value of these so-called "economies of combination." 
Professor Seligman believes that the trust is built upon a 
firm economic foundation. He states that "at bottom com- 
bination is due to the economy of production that comes from 
concentrated capital. The immense profits often secured by 
the promoters may indeed be responsible for premature or 
dishonest consolidations, but such mere speculative projects 
are obviously short-lived. Unless there are some real ad- 
vantages in the combination it cannot endure; the mere 
fact of its continued and prosperous existence justifies its 
formation." Other authorities feel that "these advantages 
are of minor consequence." Such is the opinion of Professor 
Meade, who, as already stated, believes the three main ad- 
vantages of combination lie in its control of prices, labor, and 
the middleman, but chiefly in the control of prices. 

Professor Bullock believes that these so-called economies 
of combination have been greatly exaggerated. He feels 
that if the large combinations are inherently a better form 
of business organization than large-scale independent con- 
cerns, it is odd "that the trusts find competition so trouble- 
some, and consider it 'good business' to resort to the most 
disagreeable means of driving 'interlopers' out of the field." 

The saving in cross freights, he maintains, is not nearly 
so large as represented. He maintains that since most of 
the former independent establishments were producing 
chiefly for their natural local constituencies, the trust can save 
little in cross freights. He bases his conclusions on data 
recently published by the Department of Labor, which showed 
that out of forty-one combinations reporting twenty-seven 
failed to answer the question of cross-freight savings, nine 
claimed a saving from this source, and five stated that there 
was no gain. 

The saving in advertising he considers a disadvantage. 
Advertising is not a waste, but a productive expense, and the 
trust which wishes to push its goods must advertise. Ad- 
vertising creates a demand for goods. It arouses the desire 



THE RISE OF MODERN INDUSTRY 263 

to purchase. To stop advertising is to cut down on consump- 
tion whether there are any competitors or not. In this same 
position stands the salesman. It is the drummer who is 
largely responsible for the sale of commodities outside of 
the absolutely necessary ones. Economy in salesmen and 
advertising is bad economy. 

In regard to the last "economy of combination " that we 
have mentioned, viz. ability to secure the ablest manage- 
ment possible, Professor Bullock feels that as much efficiency 
could be obtained in a concern like the Carnegie Steel Com- 
pany as can be obtained by the United States Steel Corpora- 
tion. He says : — 

"It must be remembered that the able leaders now at the 
head of the successful trusts were developed out of a field 
which afforded the widest opportunity for creative ability 
and independent initiative. These are the supreme qualities 
requisite for great industrial leadership; and they are not 
likely to be fostered by a regime, which, if the believers in 
monopoly are to be taken at their word, closes each impor- 
tant branch of manufactures to new enterprise, and renders 
hopeless all competition with a single consolidated company. 
Will successive generations of bureau chiefs or heads of 
departments in long-established corporations be able to 
continue the race of masterful leaders which freedom in 
originating and organizing independent industries has given 
us in the present age?" 

In closing this general discussion of the four historic stages 
through which American industry has passed, it is interesting 
to speculate on what will be the fifth stage. Socialists predict 
that the present large combinations are but the forerunners 
of one large combination uniting all, viz. state ownership 
and operation of the tools of production. They maintain 
that the large trusts have shown to the American people 
the practicability of cooperation. From the impersonal cor- 
poration cooperation of to-day they feel it is but a small step 
to the impersonal government cooperation of socialism. 



264 TEXT-BOOK OF ECONOMICS 

To others, the future form of industry lies in the outcome 
of the contest which is now going on between large combina- 
tions which seek monopoly control, and independent rival 
concerns backed up by a public increasingly hostile to monop- 
oly and demanding the benefits of competition. The issue 
is clearly drawn between the large-scale production, on the 
one hand, and combination (monopoly), on the other. One 
desires to eliminate the "evils of competition," and the other 
eliminates the "evils of monopoly." Many who take a 
favorable view of the trusts state that "the competitive 
system of industry is fast passing away," and that all lines of 
business "are, or soon are to be, monopolized," and that 
"monopolies of every sort are an inevitable result from cer- 
tain conditions of modern civilization." 

To others, who see in competition a stimulus to greater 
achievements, who believe that monopoly "would not need 
to be forever pulling out its machines and putting in better," 
such phrases are viewed as either misstatements of facts or 
bad prophecies. They feel that competition has never been 
allowed to work under an enlightened public opinion on the 
subject. They feel that many of the so-called evils of com- 
petition have been due to bad legislation. Because they 
advocate competition does not mean that it should be applied 
in those fields, as railway, gas, or water industry, wherein 
public opinion knows that it would be wasteful. These are 
monopolies by nature of their organization. 

Professor Bullock, in a recent article on Trust Literature 
Survey and Criticism, points out the fact, that though the 
present stage of business has been characterized by com- 
bination, it is by no means certain that this is an ultimate 
form of industry. He says: "Yet, with all the strength 
that the movement towards combination has acquired, 
competition has always vexed the would-be monopolist, and 
is especially active at the present moment. As this is being 
written, one trust is already confronted by fourteen independ- 
ent companies, while another rival enterprise with a capital of 



THE RISE OF MODERN INDUSTRY 265 

$1,000,000 is in process of formation. Another combination 
owning 290 mills was, in October, confronted by indepen- 
dent companies operating 74 mills; and in December a 
new concern with a capital of $5,000,000 was formed. 
Almost every day brings word of the appearance of new com- 
petitors for various trusts, and the New York Journal of 
Commerce says that the revival of competition may be con- 
sidered a general movement." 

The testimony of Dr. Smith in The Story of Iron and 
Steel bears much the same testimony : — 

"Despite its efforts at control the [Steel] Trust is not as 
near monopoly as it was the day it began. 

"The four full years of its operation, 1902-1905 inclusive, 
did not indicate any increased share of production. The 
bulletin of the American Iron and Steel Association shows 
that during these four years there was an almost universal 
decline in the percentages of iron and steel products made by 
the Trust, the only exception to this rule being in coke and 
wire nails, which increased slightly. It should be distinctly 
noted that these decreases in percentages of production, 
ranging from o.i per cent on miscellaneous finished forms 
to 1 1.8 per cent on Bessemer rails, are not decreases of actual 
output. There have been large increases in output all along 
the line, but the independents have increased at a more rapid 
rate than the Steel Corporation." 

It would thus seem that there are limits set to the growth 
of combination. The great department stores may have 
greatly decreased the number of small retailers, but they have 
by no means eliminated them. Their convenience, often 
due to location, insures their permanence. Furthermore, 
there are certain fields of industry in which gigantic combi- 
nations seem to fail; notable among them are the woolen 
trades, shoe factories, and cotton and silk mills. 

Furthermore, some feel that the "economic wastes" of 
competition is a cheap price to pay for its many advantages. 
This belief may make itself felt by legislation which will 



266 TEXT-BOOK OF ECONOMICS 

not seek to prohibit combination, but to regulate it, and thereby 
put a limit to combination. Just what form the fifth stage 
(if there be a fifth) is to take it is impossible to state. Until 
further data is available for the economist no generalizations 
can be drawn. One thing seems positive, however, and that 
is, American industry has far from reached its final form. 
There are indications that a new epoch is already at hand. 



TOPICS FOR CLASS DISCUSSION 

1. Through what stages has industry evolved? 

2. What led to each change? 

3. What advantages are there to manufacturers in combination? 
What to the public? 

4. Is advertising of any social service, or is its sole purpose to divert 
trade from one business concern to another? 

5. Does the tendency toward combination indicate an irresistible 
movement to socialism, or to government management of all production? 

6. What was the "Industrial Revolution"? 



CHAPTER XXXV 

ENTREPRENEUR, PARTNERSHIP, CORPORATION, AND TRUST 

To-day business in general is organized under four forms, 
the single business man, usually described in economics as 
the entrepreneur or enterpriser, the partnership, the corpora- 
tion, and the trust form. Though the four forms all exist 
to-day, equal importance does not attach to them nor has the 
relative importance of the four always been the same at each 
epoch of our industrial development. 

First historically, and least in complex form, is the single 
entrepreneur. He is represented by the average business 
man in the community who launches out for himself. So 
long as a man is in business for himself, he is an entrepreneur, 
regardless of the size of the business. The man with a 
peanut stand, the corner grocer or druggist, the owner of a 
factory or mill, are each all entrepreneurs as the term is used 
in economics. An entrepreneur is one who runs the business, 
assumes all its risks, receives all its profits, and bears all its 
losses. 

Business men, finding their field of activities limited by 
lack of capital, or of time to attend to all the details of the 
business, early devised a second plan for carrying on business, 
known as the partnership. Under this form of organization 
the single entrepreneur is replaced by two, three, or four men 
who jointly run the business and share in its gains and losses. 
As has been mentioned, the advantage of such a plan consists 
in the larger scale on which the business can be run because 
of increased capital. Again, it gives each partner an oppor- 
tunity to devote his undivided time to certain details of the 
business, thus insuring more efficient work as a whole. Often 
the greatest disadvantage of this form of business is the sweep- 

267 



268 TEXT-BOOK OF ECONOMICS 

ing liability which it imposes on each partner entering into 
this business relationship. Each partner is responsible up 
to the value of all his personal possessions for any debt con- 
tracted by any of the other partners, provided of course such 
debt is contracted in pursuance of the business. A further 
disadvantage of the partnership is the limited amount of 
capital that it can control. Though the amount is usually 
considerably greater than that which a single business man 
can command, it often falls so far short of the needs of modern 
times that the third form of business organization — the 
corporation — was devised. 

A corporation may be defined as "an association of indi- 
viduals known as stockholders, who are empowered by legal 
charter to elect annually a board of directors and through it 
to act as one person in the conduct of the specified business." 
The corporation is a legal entity existing only in the eyes of 
the law. It is intangible, and yet has many of the attributes 
of a natural person. It has power to sue and to be sued, 
to hold, purchase, and convey real and personal estates, to 
appoint officers and agents, to conduct its business, but above 
all, the corporation has the power "to have succession, by 
its corporate name, for the period limited in its charter, or 
certificate of incorporation, and when no period is limited, 
perpetually. On account of the large way in which industry 
of to-day is organized this last feature is an absolute essential. 
Industry has become a permanent institution. With the 
life of the vast railroad systems and of those industrial con- 
cerns which supply the necessities of life, dependence on the 
natural life of any individual is out of the question. A per- 
petual existence is the only feasible plan for all business organ- 
izations popularly known as public service corporations. 

The second great advantage of the corporation after that 
of its permanence is its ability to amass a large capital. 
Through a sale of stocks it may raise money from many and 
widely differing sources. A number of small streams of 
water may have little power, but united into one stream they 



PARTNERSHIP, CORPORATION, AND TRUST 269 

may turn the wheels of the mill, or in the river float the mighty 
vessels of commerce, and so render service to the community. 
So with the corporation in raising capital. Through its 
wide sale of stocks, it may unite many small streams of capital 
into a mighty river of capital capable of real service to the 
community. Its ability to raise capital largely depends on 
the principle known as limited liability. This principle makes 
the owners of the corporation, the stockholders, liable for 
the debts of the company only up to an amount equal to the 
par value of the stock. If the concern fails, the investor can 
lose no more than his stock, serious as that may be. 
The only exception to this general rule is in the case of the 
national Banks, where the liability is double the amount 
of the par value of the stock subscribed. One advantage 
is clear, viz. the stockholder is in no danger of losing all his 
wealth through the bad debts contracted by the corporation. 
A third advantage of the corporate form is its flexibility. 
New plans can be formed and executed by a complete change 
in the management of the corporation through the simple 
process of a stockholders' election. 

A fourth advantage lies in the ability of a corporation 
through the greater rewards it can offer to obtain more effi- 
cient managers and superintendents. Again, it can com- 
mand the advice of men who serve in the capacity of directors 
whose time and attention a single entrepreneur or partner- 
ship could not obtain because they have no claim on them. 
Possibly the greatest advantages of the corporation are 
those resulting from the economies of large-scale production 
made possible by the resources of a corporation with its 
large capital. These advantages of large-scale production 
may be classified under the following heads : — 

(a) Division of labor. 

(6) Expensive equipment. 

(c) Economy of buying supplies. 

{d) Economy in use of by-products. 

{e) Possibility of experimenting. 



270 TEXT-BOOK OF ECONOMICS 

Much might be said in emphasizing each of the advantages 
just mentioned, especially that of using by-products. The 
wonderful use which the Chicago packers have made of all 
parts of the animals slaughtered, from their horns to their 
hoofs, is illustrative. The fact of their running several by- 
product industries, as soap and glue making, explains their 
ability to compete in all the local markets at home and in 
many places abroad. 

The cotton industry has learned that the once despised 
cotton seed is an article of commerce valued, not only for its 
oil, but for the cake that is left after the oil is pressed out, 
and which makes excellent food for cattle. The wonderful 
list of coal-tar products, the by-products in gas making, 
has proven far more valuable in the aggregate than the gas 
which was originally the only thing sought. In all respects 
the corporation is the natural response to an economic need. 
Our vast continent, our great resources, all demand handling 
on a large scale and in a manner with a certain degree of per- 
manence and stability to it. The corporation more nearly 
answers this need than either the single entrepreneur or 
partnership form of business can. 

Just as, in time, the partnership was superseded by the 
corporation, a larger business unit which met more nearly 
the growing needs of the time, so too, in time, in many fields 
at least, the single corporation has been superseded by a 
still larger unit of management, the trust. The trust, like 
the corporation, is the response to a definite economic need, 
and forms but another step in the evolution of modern in- 
dustry. The trust may be said to have passed through three 
forms of organization. The first stage is popularly known 
as the "pool." This consists of agreements among inde- 
pendent producers in any one line whereby they try to elim- 
inate competition among themselves by either restricting 
output among themselves or by fixing prices. 

The pool is so named because under such an arrangement 
the receipts of the various concerns are put into a common 



PARTNERSHIP, CORPORATION, AND TRUST 27 1 

fund or pool and the returns divided among them in a pro- 
portion formerly agreed upon. The weakness of the pooling 
system has always proved a growth of mutual jealousy and 
distrust which ultimately causes competition to break out 
more fiercely than ever. Furthermore, the agreements on 
which a pool rests are illegal, and therefore cannot be enforced 
by the courts. 

The second stage of the trust was that in which the various 
competing corporations turn over their stock to a central 
board of trustees. This board, holding all the stock of the 
various constituent companies, can maintain complete har- 
mony among the companies and regulate output and price. 
This board issues to every one who intrusts his stock with 
them a trust certificate. This is an evidence of the real 
ownership of the stock and affords a basis on which to divide 
the profits of the trust. 

The third and last form of the trust is known as the holding 
company. This plan was devised because the second stage 
was declared illegal as a "combination in restraint of trade." 
Under the holding company plan each corporation entering 
the combination maintains its separate existence. To secure 
unity of action, a central corporation is formed, empowered 
to hold stocks of other corporations. The stock of the parent 
company is then exchanged for the stock of all the various 
constituent corporations. This places under one central 
control the voting power on the stock of all combining com- 
panies, thus insuring uniformity of action and the mainte- 
nance of prices. This third stage resembles very much the 
second, except that a board of trustees is illegal, and a corpor- 
ation empowered to hold stock of other companies is not. 

TOPICS FOR CLASS DISCUSSION 

1. Why have "pools" usually failed? 

2. What was the Northern Securities Case? 

3. Is the growth of combination in accord with economic law? 

4. Can the large factory always outsell the small one? Why? 



CHAPTER XXXVI 

THE STANDARD OIL COMPANY 

The history of this trust affords an excellent illustration of 
the widespread movement toward large-scale production and 
combination which has characterized the development of 
industry in this country during the past quarter of a century. 
The Standard Oil Company was the first trust in the field. 
It has carried the trust idea farther, possibly, than any other 
concern, and much material is available for a careful study 
of its formation and growth. 

Although 1862 is given as the date of the organization of the 
Standard Oil Company, to understand its rise and progress 
one must start at a much earlier date. 

Petroleum could hardly be called an article of commerce 
before 1859, although known before that date. It was often 
a troublesome by-product found floating on the water pumped 
from salt wells. It was considered as having medicinal 
properties. Beyond this it was little valued. A few chemists 
recognized its great possibilities for illumination if only it 
could be obtained in sufficient quantities. This was not 
realized until 1859, when the first oil well was sunk at Titus- 
ville, Pennsylvania. In a few years the oil regions of Penn- 
sylvania became famous the world over. From many wells 
in the district oil flowed at the rate of 2000, 3000, and 4000 
barrels a day. The price of oil fell from twenty dollars a 
barrel in January of i860 to ten cents a barrel by the close 
of the following year. 

This sudden birth of a new industry brought many new 
problems with it, such as storing, transporting, and market- 
ing the new product. Barrels were first used for storage, 

272 



THE STANDARD OIL COMPANY 



273 



then reservoirs excavated in the earth and lined with logs 
and cement. Next huge wooden tanks were used, which in 
turn were superseded by receptacles of iron holding thousands 
of barrels. 

At first, there was no way to reach the outside world from 
the inaccessible oil regions of western Pennsylvania but by 
team. Water and rail transportation were both at a distance 
from the oil wells. To make the connections a constant 
stream of teams plied between the oil region and the outside 
world. Many of the oil caravans numbered a hundred 
wagons or more. Often as much as three dollars or more 
were paid to haul' a barrel a distance of five or ten miles. 
This slow and expensive means of transportation could not 
last long. It was inevitable that the teamster and boat 
should be replaced by the railroad and the pipe line. More- 
over the Allegheny River traffic had grown to huge pro- 
portions. At its height no less than 1000 boats, 30 steamers, 
and about 4000 men were engaged in this means of trans- 
portation alone. 

By 1865 three railroad lines within teaming distance of the 
oil regions had pushed branches right into the heart of the 
district. The day of the teamster was almost over. As early 
as 1863 three short pipe lines had been put into operation. 
They ran for several miles, but were not wholly satisfactory. 
By 1864 a successful pipe was installed. It was a two-inch 
pipe with three relays of pumps. By this new means eighty 
barrels of oil an hour could be carried. This advance was 
soon destined to work a complete revolution in the oil busi- 
ness. Meanwhile the oil field had extended from the valley 
of Oil Creek, the place of original discovery, down the Alle- 
gheny River for fifty miles until it probably covered 2000 
square miles. The discovery of oil gave this whole district 
a most phenomenal growth. 

The story of the sudden rise of the town of Pithole is typical 
of the rapid development of the whole oil region. Pithole 
was a wilderness. In less than ten months the field was 



274 TEXT-BOOK OF ECONOMICS 

producing over 10,000 barrels a day. In six weeks after the 
first oil well was struck, Pithole had 6000 inhabitants. In 
six months' time after the first well, the post-office of Pithole 
was receiving 10,000 letters a day, and was the third city in 
size in the State. Many a man found a fountain of wealth 
beneath his field. Many of the wells required no pumping, 
but gushed forth two, three, and four thousand barrels of oil 
a day. 

Because of the difficulty at the start of getting the large 
and expensive apparatus necessary for refining crude oil 
to the source of the supply of raw materials, the bulk of the 
crude oil had been driven to the nearest manufacturing 
cities, — Erie, Pittsburg, and Cleveland. Some was even 
carried farther to the seaboard, — Boston, New York, 
Philadelphia, and Baltimore, — although as many as twenty 
refineries had been set up in the oil region. Because of its 
location, having both water and rail communication, Cleve- 
land secured the lead in the refining of oil by 1869. 

It should be borne in mind that by 1872, three trunk lines 
competed for the business of carrying oil from the oil fields, 
— the Pennsylvania (which had leased the Philadelphia 
and Erie), the Erie, and the Central. Already competition 
had become so great among these roads that the freight dis- 
criminations which were later to play such an important 
role in the development of the oil industry were common 
even at this early date. 

By 1872 the chief competitor of the Oil Creek district 
was Cleveland, Ohio, which since 1869 had been refining 
annually more oil than any other one place in the country. 
As already stated, this was due to Cleveland's exceptionally 
good position as a transportation center. "It had two trunk 
lines running to New York, both eager for the oil traffic, 
and by Lake Erie and the canal it had for a large part of the 
year a splendid cheap water way." Cleveland by geographic 
position was destined to be a refining center, though two 
hundred miles from its source of raw material. 



THE STANDARD OIL COMPANY 275 

This is of interest because of the fact that as early as 1862 
Mr. Rockefeller and a partner then in the produce business 
invested $4000 in an oil refinery which was run by an English- 
man of ability named Andrews. It succeeded so well that 
in 1865 Mr. Rockefeller entered the firm himself and soon 
started a second refinery, and then opened a house in New 
York for selhng oil. 

In 1870 Mr. Rockefeller combined all his companies 
into one — the Standard Oil Company, with a capital of 
$1,000,000. Associated with him were five or six of 
Cleveland's rising business men. 

The success of the Standard Oil Company from the start 
was phenomenal. There seems small room to doubt that 
much of its success was due to the exceptional abilities of 
Mr. Rockefeller and his associates as men of business. 
To secure the many economies in a refining business, small 
concerns must either increase their capital to about $500,000, 
or else combine into a larger and more efficient unit of pro- 
duction. "Mr. Rockefeller was among the first to see this. 
He afterwards stated the cause of his union with certain 
other business men of Cleveland was 'the desire to unite 
our skill and capital, in order to carry on a business of some 
magnitude and importance in place of the small business 
that each had separately heretofore carried on.' " 

At this time the Standard Oil Company was not the only 
large refining concern in Cleveland, though it was the largest, 
producing 4 per cent of all the oil refined. That the Standard 
Oil Company should so far outstrip the others gave rise to 
the suspicion that the Rockefeller concern was getting better 
rates from the railroads than their rivals. A representative 
of one of such firms complained to one of the railroad 
managers, "We cannot compete if you do that." The 
railroad agent did not deny the charge, but agreed to allow 
the complaining firm a rebate also by which at the end of 
each month it got back in money fifteen cents on the forty 
cents it had paid for bringing the crude oil from the wells to 



276 TEXT-BOOK OF ECONOMICS 

Cleveland. There seems little room for doubt that the 
Standard Oil Company was the recipient of special favors 
from the railroads. Even apologists for the company are 
free to admit this. They contend that at that time granting 
of rebates to big concerns affording a large volume of 
traffic to the railroads was a common practice. Pubhc 
opinion was not at that time crystallized on the evils of 
discriminations, and the Interstate Commerce Law was 
still a thing of the future. They further contend that the 
railroads tapping the oil territory were so "poor and the 
necessity for revenue so great" that rate wars were inevitable 
and likewise secret rebates. The Pennsylvania, the Erie, 
and the New York Central Railroads annually agreed on 
rates and annually broke their agreements. Thus they 
maintain that if the Standard Oil Company was guilty of 
accepting rebates, the railroads were equally to blame in 
offering them as a means of securing greater traffic than 
some competing line. 

There were two interests concerned in Cleveland's su- 
premacy as an oil-refining center, the Standard Oil Com- 
pany and the Lake Shore and New York Central Railroads. 
Competition between the oil-carrying roads became more 
and more intense, and the refiners more and more insistent 
in demanding rebates. Because of Cleveland's situation as 
a competitive point, having both railroad and water com- 
munications, she had the New York Central at her mercy. 
Cleveland accordingly secured as low rates as Pittsburg. 

In 187 1 an unexpected shift in the center of oil production 
threatened the entire refining business of Cle\eland. Had 
not the railroads come to Cleveland's rescue, this doubtless 
would have happened. The center of oil production moved 
southward from the Venango region to Butler and Clarion 
counties, Pennsylvania. 

About this time Philadelphia and Pittsburg, as well as 
Cleveland, feared the rise of the oil regions as a refining 
center. This gave certain refineries in these three cities 



THE STANDARD OIL COMPANY 277 

a strong bond of sympathy. Besides prices for refined oil 
were steadily falling. The refining business had been over- 
done. There was a refining capacity of three barrels for 
every barrel produced. In 1865 Mr. Rockefeller had "a 
margin of 43 cents, out of which to pay for trans- 
portation, manufacturing, barreling, and marketing, and 
to make his profits." By 1870 he had but 17^ cents with 
which to do all this. 

A third bond of union was the changing condition of the 
foreign market. Foreign nations were beginning to cut 
down on importation of refined oil and to import the crude 
instead in order to encourage home refineries. These three 
bonds of union among certain of the refineries of Cleveland, 
Pittsburg, and Philadelphia led to a remarkable plan among 
American refiners which Miss Tarbell has ably described 
as follows in her History of the Standard Oil Company : — 

''In the fall of 1871, while Mr. Rockefeller and his friends 
were occupied with all these questions, certain Pennsylvania 
refiners, it is not too certain who, brought to them a remark- 
able scheme, the gist of which was to bring together secretly 
a large enough body of refiners and shippers to persuade 
all the railroads handling oil to give to the company formed 
special rebates on its oil, and drawbacks on that of other 
people. If they could get such rates, it was evident that 
those outside of their combination could not compete with 
them long, and that they would become eventually the only 
refiners. They could limit their output to actual demand, 
and so keep up prices. This done, they could easily persuade 
the railroads to transport no crude for transportation, so 
that the foreigners would be forced to buy American refined. 
They believed that the price of oil thus exported could easily 
be advanced 50 per cent. The control of the refining interests 
would also enable them to fix their own price on crude. As 
they would be the only buyers and sellers, the speculative 
character of the business would be done away with. In 
short, the scheme they worked out put the entire oil business 



278 TEXT-BOOK OF ECONOMICS 

in their hands. It looked as simple to put into operation 
as it was dazzling in its results." 

The outcome was the organization of the famous South 
Improvement Company. "Of the two thousand shares 
of this company a large block was held by the Rockefeller 
interests." The South Improvement Company, though ac- 
tually controlling but about one tenth of the actual relining 
business of the country, had great hopes for the future, which 
it did not fail, in seeking to carry out its project, to put 
before the three railroads interested in carrying oil. 

By 1872 the South Improvement Company effected the 
desired contracts with the Pennsylvania, the New York 
Central, and the Erie Railroads. The Improvement Com- 
pany agreed on a certain division of traffic between the 
three roads and also "to furnish suitable tankage facilities 
for shipping petroleum and receiving it at its destination, 
and keep records of the amount of petroleum and its products 
shipped over the railroads both by itself and by other parties. 

"The railroads in return agreed to allow the South Im- 
provement Company rebates on all petroleum and its prod- 
ucts carried by them, to charge all other parties not less 
than the full rates specified in the contract, to furnish to 
the South Improvement Company waybills of all petroleum 
or its products transported over their lines by any parties 
whatsoever; and, finally, 'at all times to cooperate, as far 
as it legally may, with the party hereto of the first part, 
to maintain the business of the party of the first part, against 
loss or injury by competition, to the end that the party hereto 
of the first part may keep up a remunerative, and so a full 
and regular business, and to that end shall lower or raise 
the gross rates of transportation over its railroads and con- 
nections, as far as it legally may, for such times and to such 
extent as may be necessary to overcome such competition.' " 

As a result of this agreement the open rate from Cleveland 
to New York was two dollars. "Fifty cents of this was 
turned over to the South Improvement Company which 



THE STANDARD OIL COMPANY 279 

at the same time received a rebate enabling it to ship for 
$1.50." Furthermore, as one writer points out, "An in- 
dependent refiner in Cleveland paid eighty cents a barrel 
to get his crude from the oil regions to his works, and the 
railroad sent forty cents of this money to the South Improve- 
ment Company. At the same time it cost the Cleveland 
refiner in the combination but forty cents to get his crude oil. 
Like drawbacks and rebates were given for all points — 
Pittsburg, Philadelphia, Boston, and Baltimore. 

"An interesting provision in the contracts was that full 
waybills of all petroleum shipped over the roads should 
each day be sent to the South Improvement Company. 
This, of course, gave them knowledge of just who was doing 
business outside of their company — of how much business 
he was doing, and with whom he was doing it. Not only 
were they to have full knowledge of the business of all shippers 
— they were to have access to all books of the railroads." 

As a result of the new strength of the Standard Oil Com- 
pany under the form of the South Improvement Company, 
the entire independent oil interest of Cleveland collapsed 
in three months' time. Of the twenty-six refineries, at least 
twenty-one sold out. 

When the real nature of the South Improvement Com- 
pany leaked out, public indignation, especially in the oil 
regions, was at its height. It was the stopping of the oil 
supply by the Producers' Union that made the South Im- 
provement Company realize that it could not have every- 
thing its own way. 

In short, as a result of a legislative investigation as to the 
real nature of this Improvement Company, and of the general 
popular disapproval, the South Improvement Company 
came to an end. Peace was once more restored in the oil 
regions, though much hostility was still felt toward the Stand- 
ard Oil Company, which was viewed as the prime mover 
in the late "conspiracy." 

About the same time the Standard Oil Company of Ohio 



28o TEXT-BOOK OF ECONOMICS 

increased its capital stock from $1,000,000 to $2,500,000, 
and in the same year combined with four fifths of the refining 
interests of the United States. The official title of the new 
combination was the National Refiners' Association, of which 
Mr. Rockefeller was president. 

The new alliance accomplished openly what the South 
Improvement Company had attempted secretly. Its forma- 
tion aroused hardly less indignation than its prototype, 
especially among the producers who saw the possibility of 
having but one purchaser to whom they could dispose of 
their goods. They formed a Producers' Agency, with a 
stock of $1,000,000. To make peace with this concern, 
the Standard Oil offered a fair price for crude oil and 
promised to purchase from it alone so long as it would main- 
tain prices. Soon after Mr. Rockefeller gave the producers 
an order for 200,000 barrels of oil at $3.25. The ultimate 
outcome of this overture was the formation of an alliance 
between the Refiners' Association and the Producers' As- 
sociation on the terms that the former association should 
accept no rebates during the life of the alliance and that 
both associations should be open to all the producers and re- 
finers who cared to join them, and finally that the Producers' 
Association should sell only to members of the Refiners' 
Association. The contract was soon broken. Mr. Rocke- 
feller charged the producers with failure to limit the supply 
of crude oil according to the understanding. 

In June, 1873, the combination of Refiners likewise came to 
an end. There was a lack of internal harmony. Members 
of the association had at times sold their refined oil at a 
lower price than dictated by Mr. Rockefeller. Though 
there was rejoicing in many camps, it soon became appar- 
ent that though the association was dead, the Standard Oil 
Company of Cleveland was not. It controlled one fifth of 
the capacity of the country and was making still greater 
strides in enlarging its output. In 1872 the Standard Oil 
Company paid a dividend of 37 per cent, but in 1873 it was 



THE STANDARD OIL COMPANY 281 

cut to 1 5 per cent as a result of the many enlargements which 
the company was making, such as building barrel factories 
and buying tank cars. By 1874 the capital of the Standard 
Oil Company of Ohio had increased to $3,500,000. In 1874 
there were "in the oil regions proper but few refineries, and 
those universally owned by the Standard Oil Company." 

One fact should be borne in mind in this connection, 
namely, the subject of discrimination. Quoting from The 
History of the Standard Oil Company: — 

" Before a year had passed after the end of the Oil War, all 
the roads were practicing discrimination, how a few shippers 
were again engaged in a scramble for advantages, and how the 
big shippers were bent on reestablishing the principle supposed 
to have been overthrown by the Oil War, that one shipper is 
more convenient and profitable for a road than many, and 
this being so, the matter of a road's duty as a common carrier 
has nothing to do with the question," is of interest. 

Though the South Improvement Company and the 
National Refiners' Association had each failed, those who 
sought monopoly control of the market were not discouraged. 
In 1874 Mr. Rockefeller persuaded a large refiner in Phila- 
delphia and one in Pittsburg to transfer their refiners to the 
Standard Oil Company of Cleveland and to take stock in 
exchange. He planned to absorb other refineries as rapidly 
as possible without attracting too much public attention. 
This new scheme was executed under the name of the Cen- 
tral Association, of which Mr. Rockefeller was president. 

"Its main points were that if a refiner would lease to th6 
association his plant for a term of months he would be al- 
lowed to subscribe for stock of the new company." The lease 
allowed the owner to do his own manufacturing, but gave 
Mr. Rockefeller's company "irrevocable authority" to make 
all purchases of crude oil and sales of refined, to decide 
how much each refinery should manufacture, and to negotiate 
for all freight and pipe-line expenses. 

By this plan the Standard Oil Company owned in each of 



282 TEXT-BOOK OF ECONOMICS 

the great refining centers, New York, Pittsburg, and Philadel- 
phia, a large and aggressive plant run by the men who had 
built it up. To the outside world it stood in the nature 
of an "association." The work of absorption went on until 
even the refineries of the oil regions were taken in. In 
Titusville there was practically left only the Acme Oil Com- 
pany and in the Oil City, the Imperial, both under Standard 
management. Many of the old independent plants in this 
district bore the signs "sold out," "dismantled" or "shut 
down." By 1879 the Standard Oil alliance controlled the 
transportation of oil by rail and by pipe line and produced 
95 per cent of the refined oil of the country. 

"A proposal from Mr. Rockefeller was certainly regarded 
popularly as little better than a command to 'stand and 
deliver.' 'The oil business belongs to us,' Mr. Rockefeller 
had said. 'We have the facilities; we must have it. Any 
concern that starts in business we have sufficient money 
laid aside to wipe out.'" 

In this the cause of the Standard was often aided by rail- 
roads refusing cars to independent shippers. In fact, in a suit 
brought by the Commonwealth against the Pennsylvania 
Railroad, Mr. A. J. Cassatt's testimony amounted to the 
practical admission "that the Pennsylvania Railroad had be- 
come the creature of the Standard Oil Company ; that it was 
not only giving that company rates much lower than to any 
other organization, but that it was using its facilities with 
a direct view of preventing any outside refiner or dealer in 
oil from carrying on an independent business." 

In organization the Rockefeller interests were only an 
informal substitution for a modern trust. The various 
companies of the alliance were merely kept together by 
personal agreement between officers of the various com- 
panies and a common ownership of stock among them. 
By 1881 the Standard Oil Company of Ohio, the nucleus 
of the above-mentioned alliance, was a corporation capi- 
talized at $3,500,000. The next move was to make more 



THE STANDARD OIL COMPANY 283 

convenient the control of oil business, and as a result the 
Standard Oil Trust was formed. This was accomplished 
by an agreement whereby all the stock of the various mem- 
bers of the Central Association was placed in the hands of 
trustees. In exchange for the stock, trust certificates were 
issued showing the amount of each owner's interest in the 
stock so held. This simple device of a board of trustees 
who held in trust all the stock of the constituent companies 
placed the voting power and control of the trust .in the hands 
of a small board of nine trustees. 

About this time there was a fierce contest being waged 
between the railroads and the Tidewater Pipe Line Company. 
This was of benefit to the shippers as it gave them excep- 
tionally low rates, but it was of special benefit to the largest 
shipper of all, the Standard. Soon, however, the Standard 
began building pipe lines of its own to the seaboard. The 
formation of the National Transit Company soon followed. 
The Tidewater Pipe Line Company was finally forced to 
cease opposition, and finally on the strength of a fifteen-year 
contract with the National Transit Company peace was 
restored, and the Standard Oil Trust has established itself 
in the strategic position of practically controlling the trans- 
portation of oil to the seacoast. 

From this time on, the progress of the Standard Oil Com- 
pany was rapid. In 1882 the property of the various com- 
panies was valued at $75,000,000. In 1892 it had risen to 
$121,631,312; "and 50 per cent of this increase had come 
from profits invested and the remainder from additional 
capital subscribed." The dividends during this same decade 
rose from 5^5 to 12 per cent. The attitude of the trust 
during these ten years has aptly been described as one of 
"quiet dominance." 

An unexpected difficulty in the legality of its organization 
was soon destined to make necessary a complete change 
of organization. 

The State of Ohio in 1891 took action against the Standard 



284 TEXT-BOOK OF ECONOMICS 

Oil Company on the ground of violating the laws of the 
State by being a party to an agreement against public policy. 
The outcome of the suit was the revoking of the charter of the 
company and a dissolution of the trust. The nine trustees 
were compelled to return the stock to its rightful owners. 
The trust dissolved the separate establishments, and plants 
were reorganized into twenty constituent companies. 

"Although the trust was formally dissolved, the men who 
were the trustees hold a majority of the stock in all the dif- 
ferent companies which composed the trust, so that they 
work together as harmoniously as before." 

"In order to secure more complete unity and to provide 
for the claims of smaller holders of trust certificates, the 
Standard Oil Company was organized under the laws of 
New Jersey in 1899. This corporation, though practically 
a new organization, was in form a continuation of the old 
Standard Oil Company of New Jersey, with an amended 
capital increased from $1,000,000, to $110,000,000. This 
corporation was authorized to own the stock of any of the 
different corporations connected with the Standard Oil 
Company, and to buy from all parties who own such stock 
whenever they desired to sell. 'The new Standard Oil 
Company of New Jersey,' said the Industrial Commission 
in 1900, 'has recently been formed with the intention of 
transferring the stock of the different- corporations into the 
stock of the new company, so that, when the transfer is 
finally made, one single corporation, the Standard Oil Com- 
pany of New Jersey, will own outright the property now 
owned by the separate companies which are commonly 
known and mentioned together under the name of the 
Standard Oil Company. This combination at present has 
no formal unity. It has a practical unity as great as it will 
have probably after the complete change into the New 
Jersey company is effected. Since 1900 about $97,000,000 
of the capital stock of this company has been used to pur- 
chase at par the stocks and properties of the other Standard 



THE STANDARD OIL COMPANY 2S5 

companies, the capitalization of which was approximately 
$97,000,000, but whose good will and earning power, as 
represented by the market value of the stock, aggregates 
$650,000,000.' " 

In addition to the causes already mentioned as lying back 
of the rise and progress of the Standard Oil Company lies 
the advantage which "the Standard Oil Company has in 
distributing its refineries in strategic locations. Not only 
is a saving in transportation charges thus effected, but ad- 
vantages accruing from cheaper land, labor, and fuel are also 
secured. To gain this economy, the Standard Oil Company 
spent millions in new plants near New York and Philadelphia. 
It bought the entire output of the refineries in the newly 
discovered oil region in Colorado, and secured control in 
1898 of 75 per cent of the refining business in Canada; and 
for the same purpose it has recently rebuilt refineries in 
Pennsylvania, in order to profit by the cheapened fuel." 

There is also the further advantage in the exceptional 
opportunity that the company has for using by-products — 
"The leading products are gasoline, naphtha, parafhn, 
lubricating oils, and vaseline products. In addition to these, 
fully two hundred other by-products are extracted and used 
for medical purposes and for aniline dyes. To utilize all 
these by-products requires the greatest specialization of 
methods, of capital, and extension of plant. A refinery of 
a capitalization of $500,000 cannot realize such economies. 
The undoubtedly large profit accruing to the Standard Oil 
Company from the utilization of by-products is owing en- 
tirely to its superior mechanical efficiency and organization." 

With its early start, its tremendous size, and its large capi- 
talization, it is not hard to see how the Standard Oil Com- 
pany to-day controls 90 per cent of the export trade and 80 
per cent of the domestic trade. Its only competitor, if such a 
term be appropriate, is the Pure Oil Company — a combina- 
tion of sixty odd independent refineries operating in conjunc- 
tion with an independent seaboard pipe line. 



CHAPTER XXXVII 

THE UNITED STATES STEEL CORPORATION 

The history of the antecedents, formation, and present 
activity of the United States Steel Corporation forms one 
of the most interesting chapters in the economic history 
of America. It is replete with many illustrations of prin- 
ciples that economists speak of in the abstract, as large- 
scale production, integration of industry, monopoly control, 
and utilization of by-products. The study of a concrete 
example of economic principles is analogous to the case 
system so generally successful in the law schools of the land. 
As matter concerning all the great industrial activities of 
the country becomes more and more available, there is 
every reason to hope that treatises on economics may com- 
bine both theory and fact. 

The United States Steel Corporation commenced busi- 
ness in April of 1901, but to get anything like an adequate 
understanding of this gigantic combine one must start with 
a much earlier date and deal with concerns manufacturing 
steel long before the Steel Trust was promoted. In the 
following account of producing and marketing of steel the 
writer has borrowed freely from that excellent little treatise, 
The Story of Iron and Steel, by Joseph Russell Smith, 
to which the reader is referred for a fuller presentation of 
the subject than is possible within the Hmits of a single 
chapter. 

In 1880 Great Britain was the greatest iron-producing 
country in the world. Her only two rivals, the United States 
and Germany, trailed far in the rear. To-day the United 

286 



THE UNITED STATES STEEL CORPORATION 287 

States stands in the first place, while Germany and England 
bring up the rear. We are producing over twice as much 
as either Germany or England. 

Several reasons may be given to account for this remark- 
able progress. Chief among these are first, that the Ameri- 
can manufacturer had a great area to cater to, which was 
rapidly increasing its consumption of his product. Many 
of our present railroads and industrial plants were still to 
be built. This market was reserved to the American iron 
maker by a high protective tariff. 

Secondly, we had wonderful resources not only in iron 
itself, but also in those kindred resources so necessary to 
cheap iron manufacturing, coal, flux, and natural gas. 
The presence of these three in great quantities and con- 
veniently located gave the basis of America's ultimate 
supremacy over her less generously endowed competitors, 
England and Germany. 

But resources as important as they are form but the basis 
of success. It has been the mechanical organization of the 
iron and steel business in America that is most largely re- 
sponsible for our success. The scarcity of labor in America 
and its relative high pay has compelled this advance in the 
United States. At every step in his adjustment to conditions, 
the American manufacturer has made efiiciency his supreme 
test. Their policy, unlike the English, has usually required 
the displacement of a good machine by a better one as soon 
as it could be found, regardless of whether the machine were 
relatively new or not. 

Included in the question of mechanical organization is that 
of obtaining a steady and cheap supply of the raw materials 
of manufacture. This phase of the story of iron and steel 
reads like a romance. Pittsburg owes its prominence as 
center of the iron industry because of its native supplies of 
fuel and ore and its excellent transportation facilities. About 
1880, however, her local ore supply showed first signs of 
exhaustion. Fortunately, about this time, ore of an excellent 



288 TEXT-BOOK OF ECONOMICS 

quality was discovered on the shore of Lake Superior. But 
this new supply was a thousand miles away. There being an 
almost complete water route between the source of the supply 
and the point of manufacture, it soon became apparent that 
the economic source of supply for Pittsburg was the Lake 
Superior mines, and not the poorer local ores. To carry ore 
a thousand miles for commercial purposes is no small task, 
but to carry it so economically that European manufacturers 
with local supplies cannot get their supplies more cheaply 
has called forth all the inventive genius and use of mechanical 
force for which America is noted. 

In 1884, when Pittsburg first got her supply from Lake 
Superior, it was by means of shovels, buckets, windlasses 
and wheelbarrows. To-day it is carried from the mines to 
Pittsburg at an expense that almost staggers belief, by means 
of huge mechanical contrivances which have practically 
eliminated all human muscle. To quote an interesting 
paragraph from Dr. Smith's book: "This involves two 
transshipments, and carriage upon two railways, and a steam- 
ship. Some of the Lake Superior mines are so favorably 
located that the ore can be taken out by steam shovels in 
the manner identical with that of digging a railroad cut, 
now familiar to nearly every one. For a few cents per ton, 
the ore is thrown upon cars which are drawn away from 
10 to 100 miles to the upper lake ore docks situated high 
upon the bluffs. From this height the ore runs from the 
bottom of the car into the top of the ore bin on a high wharf, 
thence through chutes into the hold of a steamer below. 
This gravity loading serves to fill the steamer in a minimum 
of time, and almost before she is tied to the dock she is ready 
to depart for the lower lake port. Here the speed and 
method of unloading eclipse all records. Special machinery 
has been evolved whereby steam and electricity operate 
huge buckets that grab into the ore in a ship's hold just as 
a boy's two hands might grab sugar in a barrel. They close 
upon it and lift it just as easily as the hands could lift sweets. 



THE UNITED STATES STEEL CORPORATION 289 

Some of these grab buckets seize as much as ten tons at a 
time, and there is a row of them, one working at each hold 
of the ship, which is open from stem to stern. In 1901 
a machine that could unload 6000 tons in 8 to 12 hours 
for seven cents a ton was thought to be highly efficient. 
Shortly after this the 6000 tons were unloaded by ma- 
chinery in from 8 to 10 hours for less than seven cents a ton. 
In 1903 the record for 5000 tons by another machine was 
3 hours 36 minutes. This plant with its crew of 17 men 
would, with the best type of ship, handle 10,000 tons in 6 
hours, and during six months of 1903 it handled 2^ million 
tons of ore, and although the plant cost a quarter of a million 
dollars, it handled ore for less than four cents a ton. But 
the next year this, too, was outdone, and a new plant, whose 
grabbing hands handled 7I tons each, could be operated 
by two men, who, by merely touching levers, controlled 
150 horse power, and unloaded ore for the astounding 
cost of two cents per ton. This low cost was contributed 
to by the fact that the machine could reach 98 per cent of 
the ore in the bottom of the boat rather than requiring hand 
labor to gather up the last part, as was common with most 
of its predecessors." 

From the lake docks the ore is loaded by mechanical 
devices on to cars, which rush it to the blast furnaces, where 
the cars are run upon high trestles. Through openings 
in car bottoms the ore is shot into the storage bins of the 
furnace, which again open at the bottom into cars holding 
a ton or two. These in turn are carried by gravity on to 
a lift which carries them up an inclined plane from the 
top of which it automatically empties them into the fur- 
nace. 

The same economic, manless handling which characterized 
the journey of the ore from the time that it left the earth 
until it reached the throat of the furnace is continued until 
the finished product is on the car ready for the consumer. 
The iron is carried while still hot to the near-by steel works. 



290 TEXT-BOOK OF ECONOMICS 

Again man has harnessed the forces of nature and made 
them work for him. Quoting further from The Story of 
Iron and Steel, we read : — 

"Steel is not made with hands. In the iron and steel 
industry of America, mechanism rules supreme. Man does 
httle more than touch levers, while the balance is done by 
steam and electricity, hammering and pulling and lifting 
with a force unknown to the giants of mythology. Four 
huge Bessemer converters holding fifteen or twenty tons of 
molten iron do their work by an air blast driven through 
molten metal by the force of an engine. The air blast and 
the hydraulic force which swings the converter as easily 
as a clock does its pendulum, are both controlled by two 
men sitting in a cool breeze on a high platform at the far end of 
a large shed. The electric cranes swing the 20-ton charges 
of molten metal and the heavy converters as easily as the 
schoolboy swings his dinner pail, and pour the new-made 
steel into a metal mold which already stands upon a train 
with a snorting little locomotive ready to take it to the hy- 
draulic machine which draws the mold from the red-hot 
ingot. Away runs the train to the steel mill, where an 
electric arm places the 7000-pound ingot in a seething, soak- 
ing pit, to keep it hot until it starts down the rolls, which 
may make it almost anything, — a steel rail or beam for 
a railroad bridge in India, a girder for a sky-scraper for New 
York or San Francisco, a rib of a ship for Philadelphia or 
Chicago, or a little billet to make a wire fence for the 
farmer's pig lot, or nails for the carpenters' resounding 
hammer." 

It has been this extensive use of machinery, which runs 
as smoothly as clockwork, that explains the supremacy 
of America to-day. Fortunately, scarcity of labor in this 
country compelled the extensive use of machinery. The 
results have been far greater than was ever dreamed. 

Having dealt with more or less of the technical side of the 
producing of steel, we will now turn our attention to business 



THE UNITED STATES STEEL CORPORATION 291 

aspects involved. To understand clearly the formation of 
the United States Steel Corporation, one must make mention 
of at least one of its predecessors, notably the Carnegie Steel 
Company of Pittsburg. This company has been a pioneer 
in every way. As early as 1882 it had started on a policy 
of the integration of industry which afterward made it so 
impregnable to the attacks of all rivals. 

It early secured under its control the production of its 
own raw materials. It acquired the controlling interest in 
the H. C. Frick Company, the largest producer of coke in the 
famous Connellsville region, whereby it secured coke at 
unparalleled prices. It furthermore bought ore supplies 
and transportation facilities. As Professor Smith's history 
of this company points out : — 

"In 1897 the company had control of large ore regions in 
the Lake Superior district, and in addition made a fifty-year 
contract for a yearly supply of a million and a half tons of 
ore delivered at the lower lakes. The company also secured 
control of the Pittsburg Steamboat and Steamship Company, 
owning in 1900 eleven steamships, two tug boats, and six 
steamers under construction. It secured control of the 
Pittsburg, Bessemer, and Lake Erie Railroad, extending 
from the lake port of Conneaut, where there were large ore 
docks, to the Carnegie mills at Duquesne, near Pittsburg. 
This railroad was reconstructed, equipped with hundred- 
pound steel rails; it had the first steel cars in this country, 
and had the heaviest locomotives. By the aid of these im- 
provements, ore was carried at cost, at the almost unknown 
figure of one mill per ton for a mile. The Carnegie Steel 
Company was now independent of other companies in the 
supply of its fuel, its ore, and the transportation of the same, 
and was free from the fluctuations of cost in these supplies. 
The profits of these subsidiary operations were cost factors 
for their rivals, and profit factors for the Carnegie Company. 
These equipments, in addition to the splendid^ mills and 
furnaces, placed the Carnegie Company in the foremost 



292 TEXT-BOOK OF ECONOMICS 

position among the iron and steel makers of the United States 
and of the world." 

One of the chief motives back of the trust movement of 
the '90's was the desire to escape the evils of cut-throat 
competition by maintaining prices. The business man 
dislikes above all things unsteady prices. In no industry 
do prices naturally fluctuate so violently as in that of iron 
and steel, depending as they do on supply of a commodity 
whose consumption readily drops off with the advance of 
the slightest business depression. 

The dark days for the iron and steel manufacturers came 
in the business stagnation between 1893 and 1898. The 
outcome was the formation of a number of pools which ap- 
portioned the business of the country among its various mem- 
bers. Goods were to be sold at a price agreed upon. These 
pools were short-lived for various reasons, chief of which was 
the fact that a pool is against the spirit of the English and 
American common law and therefore no terms made under 
such agreements could be enforced by law. 

Pooling having failed to secure steadiness of prices in the 
steel business, the desired end was accomplished through 
consolidation of competitors in the same line of goods. As 
a result, during 1898 and 1899 such gigantic trusts as the 
American Steel and Wire Company, the American Bridge, 
the National Tube, the American Tin Plate, the American 
Steel Hoop, and the American Sheet Steel were formed. 

These trusts were almost wholly financed by Wall Street. 
The returning tide of prosperity made an excellent market 
for unloading stock. Often dividends were declared with an 
eye to the effect on the stock market when it would have been 
better business to build up reserves for the lean years. 

In 1900 a depression in the steel trade found these trusts 
with scanty reserves to carry them through the rainy day. 
As with individuals, so with these steel trusts, self-preservation 
became the first law of life. To weather the storm meant 
either to cut down expenses by getting the raw materials of 



THE UNITED STATES STEEL CORPORATION 293 

manufacture more cheaply, or by increasing profits by en- 
larging the territory for its finished products. This might 
be done by manufacturing several articles in place of one. 

To understand the result that this threatened competition 
would have on the steel trusts, one must see how these com- 
bines were interdependent on each other. The Carnegie 
Steel Company, the Federal Steel Company, and the National 
Steel Company each manufactured unfinished steel as 
ingots, billets, bars, plates and slabs. These products they 
sold to the other steel trusts, the American Tin Plate, the 
National Tube, the American Steel and Wire, the American 
Steel Hoop, and the American Sheet Steel companies, who 
turned out the various steel finished products. 

To tide them over all depressions this last group of trusts 
decided to cut down their expenses by manufacturing their 
own pig iron. The American Steel and Wire Company 
accordingly bought coal lands and lake steamers, and planned 
erecting furnaces of their own. 

Naturally the Carnegie Steel Company and the other 
trusts in the finished-product group did not stand by and see 
their market stolen from them. The Federal Steel Company 
increased its holdings of ore and coal and secured additional 
lake steamers and railway connections. It announced its 
purpose of building plants where it would turn out finished 
products in competition with those companies already in 
that line. The Carnegie Steel Company made a similar 
move by planning the erection of a plant for the turning out 
of finished products which would be in its equipment without 
a rival in the world. 

The threatened war of competition among the giants 
struck consternation to the hearts of all but the Carnegie 
Steel Company. This concern, from the start, had been 
very conservatively managed and was in an excellent financial 
position. The other trusts, on the other hand, had largely 
been the product of Wall Street manipulation, so that their 
financial standing was not nearly so good as that of the 



294 TEXT-BOOK OF ECONOMICS 

Carnegie Company. In addition the Carnegie plants were 
the best equipped in the country and its control of raw- 
materials almost perfect. The various financial concerns 
soon realized that with the Carnegie Steel Company compet- 
ing in their field their desired profits would immediately be 
cut down. Consequently, the only possible alternative for 
them was to make peace with Mr. Carnegie, and at his terms. 
The result of the whole situation was the formation of that 
gigantic combine known as the United States Steel Corpora- 
tion, which at its outstart controlled about two thirds of the 
steel output of the country. Some plants were too small to 
care for and others refused to come into the combine. 
In 1902 its assets were given as follows: — 

Iron and Bessemer ore properties $700,000,000 

Plants, mills, machinery, etc 300,000,000 

Coal and coke fields 100,000,000 

Railroads, ships, etc 80,000,000 

Blast furnaces 48,000,000 

Natural gas fields 20,000,000 

Limestone properties 4,000,000 

Cash and cash assets 148,281,000 

$1,400,281,000 

By December, 1906, its assets had grown to $1,618,309,769. 

This corporation has been a success in its purposes. It 
has controlled and steadied prices; moreover, it is perhaps 
one of the best organized industries in the world. All its 
various parts fit into each other with perfect accuracy and 
run like clockwork. It is maintained that the "control of 
steel industry lies in the control of the raw materials." Along 
this line the steel trust has pursued a far-sighted policy by 
taking over one ore property after another. It is computed 
that it owns about 2,000,000,000 tons of ore, while the in- 
dependents control 500,000,000. 

Dr. Smith concludes that the trust is stocked for at least 
a half century to come, going on "the assumption that 
the iron industry continues to be dependent upon its 



THE UNITED STATES STEEL CORPORATION 295 

present technical process, which can use only high-grade 
ore." 

The United States Steel Corporation has succeeded where 
pools and the earlier trusts failed. It has brought steadiness 
to the steel industry and stands to-day as "the most stupen- 
dous corporation that man has yet dared to launch." 



CHAPTER XXXVIII 

THE CORPORATION AND THE PUBLIC 

Perhaps in no more vital way does the public come in 
contact with the trust than in reference to the subject of 
prices. How may the trusts affect prices and how have they 
done so? The only way the trust can affect prices is by 
Hmiting the supply of the article in question and then 
allowing the ratio of exchange with other articles to ad- 
just itself. If the other article is money, then the price is 
said to change. The trust cannot fix a price and say, "Go 
to, we will charge so much." Only by first altering the sup- 
ply can changes in prices be effected. This is an economic 
principle which all who would fix prices must follow, and the 
trust is no exception. 

Because of the economies of large-scale production and 
combination, the trust should be able to sell its products at 
prices lower than could be possible with smaller competing 
units. If, however, the trust maintains prices at their old 
level, the gain will accrue to the monopolist, unless organized 
labor compels the trust to share with it by demanding higher 
wages on account of the exceptional gains of the trust. A 
change in price may then benefit the consumer, the trust, 
the workman, or all three. This will largely be determined 
by the relative degree of monopoly power held by each. So 
much for the theoretical way in which large combinations 
may effect prices and the public. 

How have the trusts actually affected prices? Perhaps 
this cannot be better answered than by quoting a para- 
graph from Professor Fetter's work on The Principles of 
Economics : — 

296 



THE CORPORATION AND THE PUBLIC 297 

" The influence of the sugar trust may be studied by what 
is known as the method of differentials. The differential in 
sugar is the difference between the cost of the raw sugar and 
the refined granulated sugar. Raw sugar is the main ma- 
terial and the principal fluctuating item of cost beyond the 
control of the trust. Changes in the differential reflect the 
changes in profits except as modified by a cheapening of the 
process. The period from 1880 to 1887 was one of great 
competition. In 1880, the differential was one and ninety- 
two hundredths cents on each pound of refined sugar, but it 
fell steadily till, in 1887, it had reached sixty-four hundredths 
cent. In the fall of that year the trust was formed ; and the 
next year the differential had risen to one and twenty-five 
hundredths cents, in 1889 to one and thirty-two hundredths 
cents. Tempted by the enormous profits, the rival refineries 
of Claus Spreckels were started, and with competition the 
differential fell, in 1890, to seventy hundredths cent. The 
rival factories were then bought up, and under the new com- 
bination the differential went sailing up to one and three 
himdredths in 1892, and to one and fifteen hundredths in 
1893. Rival factories again arose and competition grew 
stronger, reducing the differential to ninety-four hundredths 
in 1894. It was in that year that the firm of Arbuckle 
Brothers and Claus Doscher each opened a great refinery, 
and in the next year the differential fell to fifty hundredths 
cent. In 1900 some agreement, the terms of which were 
unknown to the public, was entered into by the rivals, and 
the differential had risen, in March, 1901, to ninety-five 
hundredths cent. In every case the differential fell when 
competition was effective and went up when monopoly power 
was regained." 

Professor Fetter points out the same influence in the cases 
of the oil trust, the nail trust, and the tin-plate trust, and 
comes to the conclusion that "trust prices are always raised 
when, and to the extent that, control is secured. They are 
lowered below normal prices when competition becomes 



298 TEXT-BOOK OF ECONOMICS 

troublesome. Fluctuation of prices probably has been 
more rapid and more spasmodic under trusts than it has been 
under ordinary competitive conditions." 

Professor Ripley, in his book on Trusts, Pools, and Corpora- 
tions, practically reaches the same conclusion by noting, for 
instance, the sugar and oil trusts. He declares that "no 
candid observer can deny that monopoly price where pos- 
sible is much higher than the price level under competition." 

The following, from the pen of Professor Bullock, but 
emphasizes what has been already said : — 

"Economists do not need to be told that a combination 
that produces from 70 to 90 per cent of the supply can sub- 
stantially control prices, and this is admitted by such expert 
witnesses as Messrs. Havemeyer and Archbold. It is well 
known that many trusts control from 65 to 95 per cent of all 
products of their respective industries, and that some of 
them announce from day to day the prices that prevail in 
domestic markets. Therefore, we are not surprised to learn 
that the most reliable investigation into prices shows that, 
in almost every case, combinations have managed to increase 
the margin between the cost of materials and the price of the 
finished product for considerable periods of time. This 
fact establishes the existence of monopolistic intent and 
monopolistic power." 

Miss Tarbell, in a chapter on the Price of Oil, makes the 
significant statement: "It is generally conceded that the 
man or men who control over seventy per cent of a commod- 
ity control its prices. . . . Within limits, very strict limits, 
too, such is the force of economic laws. In the case of the 
Standard Oil Company the control is so complete that the 
price of oil, both crude and refined, is actually issued from its 
headquarters." 

There are elements of price control which do not present 
such a dark picture. It is said that the iron makers view the 
United States Steel Corporation in a most friendly manner 
because they are free to make and sell iron under the benefit 



THE CORPORATION AND THE PUBLIC 299 

of the price regulation which the steel trust had inaugurated. 
Professor Smith, in The Story of Iron and Steel, states that 
the steel trust's price control " has prevented sharp rises to the 
heights of fabulous profit that there might be no falls to the 
depths of stagnation and bankruptcy," and further, "this 
price-steadying is of incalculable benefit to the independent 
manufacturer, even when it limits the heights to which a 
price spurt will go. The apparent contradiction of benefit 
from temporary lessening of profits is explained by the fact 
that rapidly rising prices start a feverish, intoxicated con- 
dition of the market, which is very pleasant while it lasts, but, 
like most intoxication, is followed by a yet more unpleasant 
reaction. Therefore the trust tries to keep sober and keep 
its little brothers sober also, and all are profiting by the new 
temperance. 

"Through its mere size the United States Steel Corporation 
can control many prices by simply maintaining quotations to 
which buyers must conform. Such control, however, is 
much easier in the preventing of high prices than in keeping 
prices from falling." 

Interesting in this connection is the testimony from an- 
other source. In a very recent book on the United States 
Steel Corporation, by Abraham Berglund, the author reaches 
the conclusion that the company has never had — and is not 
likely to have — more than a qualified monopoly of the steel 
trade; that its policy in respect to prices has been one of 
moderation, but would probably not remain so moderate 
if monopoly were ever assured; and that such control over 
markets as the organization may wield in the future will 
probably be exercised in association with independent pro- 
ducers through such agencies as pools or price agreements. 

Though probably the trusts affect more people through 
their influence on prices, there are other points of contact 
giving rise to serious problems. Chief among these are ques- 
tions of over-capitalization, corruption of public officials, 
and stock manipulation. The evils of over-capitalization are 



300 TEXT-BOOK OF ECONOMICS 

several. First, there is the injury that may be inflicted on 
the "innocent investor," and secondly, the interest of the 
State may be impaired by over-capitalization. Many an 
investor on the strength of the earnings of a concern (which 
are really due to monopoly control, rather than to capital 
actually paid in and invested in equipment), pays high 
prices for stock. If any unexpected turn happens whereby 
this monopoly control is lessened, their investment dwindles 
to nothing. Further, this class of "innocent investors" 
gives rise to "vested interests" which oppose any public 
measure which tends to lessen the returns on their invest- 
ment, though these returns are taken from the pockets of the 
people through franchise grants or the like. Their business 
instinct leads them to oppose a measure, however good for 
the public, which tends to lessen the return on an invest- 
ment made in good faith. 

Furthermore, through that method of over-capitalizing 
known as "stock watering," corporations have been able to 
conceal their earnings and so escape inviting competition, 
as well as preventing the conservative investor from knowing 
whether the earnings represent a fair return on capital actually 
invested or not. The evil which lies at the basis of over- 
capitalization is that in nine cases out of ten it leads to decep- 
tion. The average person is thrown off his guard in placing a 
real value on the stock which he buys ; the officials charged with 
enforcing the tax laws are deceived as to the basis on which 
to act; and finally over- capitalization tempts those in charge 
of large concerns to endeavor to earn dividends at the expense 
of the public. Experience is proving that, in the long run, 
the safely capitalized concerns can alone command the 
banker's credit, weather periods of financial strain, and hold 
the allegiance of investors. In regard to the prevalence of 
over- capitalization a word from The Story of Iron and 
Steel may not be out of place : — 

"While these companies were formed as the result of the 
stimulus of depression and lean years, they could only be 



THE CORPORATION AND THE PUBLIC 30I 

brought about by the financial conditions of the period of 
returning prosperity. Naturally, a prosperous mill was 
not to be had cheaply. Each manufacturer whose plant 
was bought out sold at a figure which capitalized his present 
profitable earnings and possibly his hoped-for future earn- 
ings. This was but human nature, and the trust formers 
therefore had to face the difficulty of starting with heavily 
over-capitalized companies. Six of the largest of these 
companies which afterwards entered into the United States 
Steel Corporation, having a capital of nearly half a billion 
dollars, had at least 53 per cent of this capitalization in the 
form of common stock, which admittedly represented no 
present value, but was merely value in prospect." 

The corruption of public officials is not a practice solely 
connected with corporations, but it is a matter of great 
import. The dangers that lie in it are so great, that an 
aroused public opinion has forced the political parties of 
to-day to make public the source of their campaign contri- 
butions, and in certain States has compelled the railroads to 
abolish their system of free passes. The influence of the 
railroad over political affairs is so great as to elicit the follow- 
ing from the pen of Professor Fetter: "The wealth and 
industrial importance of the railroads give them widespread 
political power in other ways. It is commonly charged in 
some States that the legislature and the courts are 'owned' 
by the railroads. The railroads, in part because they are 
the victims at times of attempts at blackmail by dishonest 
public officials, are compelled in self-defense to maintain a 
lobby. The railroad lobby, defensive and offensive, is in 
many States the all-powerful 'third house.' Railroads even 
have their agents in the primaries, they enter political con- 
ventions, they dictate nominations from the lowest office 
up to that of governor, and they elect judges and legislators. 
The extent to which this is done differs according as the 
railroads have large or small interests within the State. 
How is this great political problem to be met except by an 



302 TEXT-BOOK OF ECONOMICS 

appreciation of its importance and by a growth of public 
integrity?" 

The following, from Professor Seager, is hardly less posi- 
tive : — 

"Corporate officials, moreover, do not hesitate to do 
things in the name and under cover of their corporations 
which they would be ashamed to perform openly for them- 
selves. In the United States corporations have been guilty 
of buying legislatures, corrupting judges, bribing juries 
entering into agreements with political parties, insuring 
them certain privileges in return for campaign contribu- 
tions, and in fact, of every sin in the political calendar. It 
is owing largely to them that the tone not only of business, 
but of political, morality is much below the standards of 
private life." 

The last way that we shall discuss in which the corpora- 
tion affects the interests of the public is in reference to 
stock manipulation. This is a matter of most far-reaching 
consequences. Yearly millions of dollars pass from the 
hands of innocent investors to swell the coffers of those 
"on the inside" who either know how to manipulate the 
market, or else have knowledge in their possession from 
which the public is debarred and by which the "insiders" 
may profit. Too few are the corporations whose securities 
are listed on the stock market which issue financial state- 
ments from which the investing public can gain adequate 
knowledge for a safe investment. The stock market is 
continually subject to influences causing a rising or falling 
market which periodically seems to reach a climax in a 
panic. A panic, news of a bank failure, or sometimes a 
maliciously circulated rumor starts the price of stocks to 
falling. Those "on the inside" realize that the time to buy 
certain stocks is when after the stock market has been falling 
for some time it has about reached its lowest point. The small 
investor — the man who has invested all his earnings, accu- 
mulated after years of toil, or the woman who has gathered 



THE CORPORATION AND THE PUBLIC 303 

together a few thousand dollars from dressmaking, or teach- 
ing, and put her all in buying stocks which she has every 
reason to consider safe — becomes frightened and sells for 
fear the price of the stock may even go lower. If they paid 
$50 a share, they may be glad to throw it on the market at 
$25 for fear of being compelled later on to accept $15. Mean- 
while, those "on the inside," knowing the intrinsic value of 
the stock, from knowledge which they alone possess, and 
that its price is bound soon to rise again, are quietly buying 
all the stock that they can get their hands on. Stock that 
formerly sold for $100 they may perhaps buy in at $40. 

Then the tide on the stock market begins to turn, and 
prices gradually climb up again. Sometimes it is the result 
of a general return of prosperity. Sometimes, on the other 
hand, a fictitious value is given to stock by paying dividends 
out of earnings that should have been expended for re- 
newals and replacements, or through a padded balance 
sheet. An illustration for the latter is to be found in the 
case of the Asphalt Companies when the Audit Company 
of New York changed an apparent surplus of $758,000 to a 
deficit of $541,000. On a rising market those "on the in- 
side" gradually unload their stock at double or triple the 
price and wait for the next falling market to buy back per- 
haps the same stock at a half or a third of its recent price. 
If one "on the inside" puts a million in stock on such a deal, 
it only requires a comparatively short time before he has 
two millions in its place. 

If a corporation makes a million of profits in a year, the 
community has something to show for it in the line of rail- 
roads built, bridges constructed, houses erected, or food 
produced; but if those "on the inside" make a million in a 
year, the community has nothing to show for it but a num- 
ber of homes in which the security of old age has been 
wiped away and the present standard of living lowered. 

The corporation has come to stay, its advantages are 
many and great, but so also are the evils to which it has 



304 TEXT-BOOK OF ECONOMICS 

given rise. Only an aroused and intelligent public opinion 
which can first dispassionately and scientifically diagnose 
the disease can hope to afford us an effective remedy. We 
need first light and then a constructive programme. 

TOPICS FOR CLASS DISCUSSION 

1. Should the government attempt to regulate the price when a 
monopoly is shown to exist? 

2. How would the effects on society be different, if prices were re- 
duced by belter organization and the prevention of waste? 

3. Is it good public policy to allow a trust to charge different prices 
for the same commodity throughout the United States, irrespective of 
the question of transportation charges? 

4. What are vested rights? Do they ever stand in the way of prog- 
ress? Examples. 

5. What is a panic? 



CHAPTER XXXIX 

ANTI-TRUST LEGISLATION 

The history of legislation framed to correct the abuses 
of monopoly power on the part of industrial combinations 
resembles the record of acts passed to curb the growing 
strength of the railroads already described in an earlier 
chapter. In both cases State action preceded federal action, 
and repeated amendments to the national law have been 
urged or passed. 

The first anti-trust laws were those passed by the various 
States. Kansas took the lead by passing a law against busi- 
ness corporations in 1889. She was joined by a small num- 
ber of States the same year. In the first half of 1890 three 
more States joined the movement. On July 2 of that year 
the demand on all hands for legislation became so pressing 
that the Federal Anti-Trust Act, popularly known as the 
Sherman Law, was passed. Since then many States fol- 
lowed the example of their sisters, and of the federal gov- 
ernment, and passed anti-trust laws until upward of thirty 
legislatures had passed laws on the subject. These various 
State measures were similar in most respects in that they 
made persons engaged in any combination in restraint of 
trade liable to fine and imprisonment, and the corporations 
or firms punishable by loss of charter or of right to carry 
on business within the State where the offense is committed. 
The United States Supreme Court held that these laws, 
applied to any combinations, whether they formed a partial 
or complete monopoly, were equitable or inequitable. It is 
now pretty generally conceded that these State laws failed in 
X 30s 



3o6 TEXT-BOOK OF ECONOMICS 

being too drastic. If they had been enforced to the full 
letter of the law, much business would have been paralyzed. 

The Sherman Act of 1890 declares that "every contract, 
combination in the form of a trust or otherwise, or con- 
spiracy in restraint of trade or commerce among the several 
States or with foreign nations" is illegal, and that "every 
person who shall monopolize, or attempt to monopolize, or 
combine, or conspire with any other person or persons to 
monopolize, any part of the trade or commerce among the 
several States or with foreign nations, shall be deemed guilty 
of a misdemeanor, and on conviction thereof shall be punished 
by fine not exceeding $5000 or by imprisonment not exceed- 
ing one year, or both said punishments in the discretion of 
the court." 

Because the legislative authority in the United States is 
organized on a dual system of national and State sovereign- 
ties, the Sherman Anti-Trust Act, although intended to prevent 
industrial combinations, has been only in rare instances ap- 
plied to them, but frequently to railroads and trade unions. 
The notable instance of this latter was the suppression of 
the Chicago Railroad Strike in 1894, under the provisions 
of the Federal Anti-Trust Act. This peculiar situation 
arises from two facts: first, that under the Constitution of 
the United States Congress has control over commerce 
between the States. Interstate commerce is interpreted by 
the United States Supreme Court as "intercourse and 
traffic between the citizens or inhabitants of different States," 
including "not only the transportation of persons and 
property and the navigation of public waters for that pur- 
pose, but also the purchase, sale, and exchange of commodi- 
ties." By the terms of the Constitution the States are de- 
barred from any attempt at the regulation of interstate 
commerce. 

Second, that under the Court's definition of interstate 
commerce, the business of manufacturing is not included. 
In so far as the trust is usually a manufacturing concern, 



ANTI-TRUST LEGISLATION 307 

this important part of its activities comes under the juris- 
diction of State authority. As engaging in interstate com- 
merce, the trust is amendable to the federal government; 
as a manufacturing concern it is amendable to the State 
only in which it is located. This situation makes it almost 
impossible for Congress to exercise any efhcient control 
over the trusts. The interstate commerce in which they 
are engaged and over which the Constitution gives Congress 
control, may be so carried on as to evade practically any 
prohibition that Congress could make without putting a 
serious check on all interstate commerce. 

The States, on the other hand, are almost as powerless, 
for although they can control the manufacturing of trust 
products within its domains, they cannot prevent trusts 
organized under the laws of other States, and having their 
plants outside the State, from shipping their products into 
the State. If they attempted this they would be interfering 
with interstate commerce, which is strictly prohibited by the 
Constitution of the United States. Furthermore, outside 
the question of legality, any plan of control which rested 
on State action would probably have the weakness of a 
lack of uniformity. A chain is no stronger than its weakest 
link, and so any series of laws passed by the various States 
would be no more efficient than the regulation in the weakest 
State. This is at present a problem that has not yet been 
solved. A State may so liberalize its corporation laws as 
to afford a veritable asylum for certain trusts; it may even 
authorize the corporation to do business in every State in 
the Union except its own, and the other States are power- 
less to keep out its products, for such an attempt would 
constitute an interference with interstate commerce. The 
States with the most indulgent policies have been New 
Jersey, Delaware, and West Virginia. The usual induce- 
ments which are held out consist of light incorporation fees 
and taxes, the absence of specifications as to character of 
business or amount of capital stock. About 95 per cent of 



3o8 TEXT-BOOK OF ECONOMICS 

existing corporations hold charters granted by one of these 
three States. Such is the present condition of trust control, 
or rather lack of it, with the exception of the important 
step forward which was taken when the Department of 
Commerce and Industry was created in 1903. 

This new departure in the line of corporation control 
aims at connecting certain trust abuses through publicity. 
Under the above-mentioned department is the Bureau 
of Corporations which is charged "to make diligent in- 
vestigation into the organization, conduct, and management 
of the business of any corporation, joint stock company, 
or corporate combination engaged in commerce among the 
several States or with foreign nations, excepting common 
carriers . . . and to gather such information and data as 
will enable the President of the United States to make 
recommendations to Congress for legislation for the regu- 
lation of such commerce." 

At the head of this bureau stands the Commissioner of 
Corporations, who is authorized to subpoena witnesses and 
to examine whatever books and papers of the trusts are 
necessary for him to carry out fully the functions of his 
office. Among other things which this new department of 
government has accomplished have been a Report on the 
Beef Industry, and also the quite recent official investigation 
on the Transportation of Petroleum. 

It may not be out of place to note that the field of possi- 
ble future legislation is narrowed down to three distinct 
propositions. First, there is incorporation under federal 
law. Such a law would have to be purely voluntary, but 
it is held that enough inducements in the line of legal privi- 
leges and immunities could be held out to cause all future 
corporations to take out federal, instead of State charters, 
and to cause many now incorporated under State laws to 
change their charters. The second plan is similar to the 
first. It proposes a federal franchise or license for per- 
mission to engage in interstate commerce. Prohibiting 



ANTI-TRUST LEGISLATION 



309 



such commerce to all unauthorized corporations would 
practically bring all those of any magnitude under federal 
supervision. 

The third plan proposes reasonable publicity. The ad- 
vocates of this plan see in publicity a means of revealing the 
existence of abnormal sources of income, or other condi- 
tions now kept from the investing public. The establish- 
ment of the United States Bureau of Corporations has been 
a step in this direction. Many feel that the work in this 
direction should be extended,- and that the information 
gathered by this bureau should, within reasonable limits, 
be open to the public as well as to the President of the United 
States. One thing is certain, to the future belongs the task 
of passing laws that are adequate to solve the momentous 
questions which the corporation and trust have brought us. 



BOOK VII 

CHAPTER XL 

MUNICIPAL MONOPOLIES 

The study of monopolies includes those based on natural 
resources or the monopoly advantage of location. In this 
respect, the transportation, water, gas, and electric com- 
panies (as well as others of a similar nature), producing a 
form of finished product for instant and continuous use, 
afford examples of a particular kind of monopoly found in 
urban centers, and are conveniently labeled municipal 
monopolies. These possess many of the characteristics of 
the ordinary capitalistic monopoly, but in many ways strik- 
ing differences will be noticed in their processes and growth. 
For instance, the capitalistic monopoly may have no direct 
connection with government procedure or politics, and it 
may in no way be affected by migrations of people from 
place to place. But in the case of the municipal monopoly, 
the admixture of the economics of the problem with the 
political aspect of the monopoly as a public service corpora- 
tion, is usual and quite apparent. And in investigating the 
nature and influence of this particular kind of natural 
monopoly, it is necessary to realize the relation of the mo- 
nopoly itself to the municipal government in order to make 
a clear and comprehensive analysis of the problem. 

The municipal monopoly will, therefore, be studied from 
two points of view; the purely economic viewpoint, in- 
volving financial questions of profit and loss, cost of pro- 
duction, etc., and the more social viewpoint looking to 
questions of constantly increasing utility and social progress. 
The investigation will include in detail only transportation, 
I 310 



MUNICIPAL MONOPOLIES 311 

water, gas, and electricity, for though there are other indus- 
tries within the limits of a municipality which might be 
classed as such (as public baths, abbatoirs, milk depots, 
etc.), these four will illustrate quite comprehensively the 
method and problems of all and give the student the neces- 
sary viewpoint in connection with the whole problem. 

The essential difference between a capitalistic and mu- 
nicipal monopoly lies in the peculiar relation of the latter to 
the public, and also in the conditions under which it exists. 
First, the public has come to be dependent upon a trans- 
portation or water company for its comfort and progress. 
Secondly, substitution in purchase can be made with diffi- 
culty, if at all. And thirdly, competition is, practically im- 
possible for the efficient administration of a municipal 
public service corporation (a fact easily proved by experi- 
ence). These three elements of contrast must be fully 
emphasized in order to understand problems coming up 
from time to time in the discussion. In addition, the rela- 
tion of the public service corporations to the city taxpayer 
and the influence of the various industries on the growth of 
population and standard of life, brings to view some dis- 
tinctly peculiar characteristics in this form of monopoly. 

It is seen, therefore, that municipal monopolies, as a rule, 
evolve from natural conditions and aggregations of popu- 
lation, and they become by their very nature clothed with a 
public interest. Their relation to the standard of life is 
readily seen in problems of housing, distribution of popula- 
tion, sanitation, recreation, and the division of labor. For 
example, the opening up of new streets and outlying city 
districts and the connecting of urban with suburban regions 
by the transportation companies, influences not only popu- 
lation in its growth and distribution, but also affects values 
in real estate, causes readjustments in the uses of land, and 
makes for greater extension of business circles. A more 
extensive and imperative use of water not only for drinking 
purposes but also along the lines of sanitation and fire pro- 



312 TEXT-BOOK OF ECONOMICS 

tection, makes possible the solution of many problems of 
health, safety against conflagration, and a higher standard 
of life through cleanliness. Gas and electricity, in addition 
to the comfort of illumination in the home, have assured 
us a more efficient police protection, increasing consump- 
tion of cooked foods through the use of gas and electric 
stoves, and the extension of productive enterprises by electric 
power. 

But mixed with these elements, distinctly characteristic of 
municipal monopolies, are such factors as profits, over 
capitalization, cost of production, efficiency of service, and 
quality of product. These in turn must engage the atten- 
tion of the student, and will serve to show not only the points 
of similarity with the capitalistic monopoly, but also the 
points of contrast. For instance, the cost of production 
plus a reasonable profit, as represented in the case of a trans- 
portation company by the rate of fare, may be estimated 
by the company in precisely the same manner as by any 
other public monopoly. But an increase in the price to the 
consumer (the price also being represented by the rate of 
fare), cannot be made according to the law of monopoly 
price; for the public being dependent upon the company 
for the product (and there being no competition), demands 
legal or other regulation in lieu of substitution or depriva- 
tion. Over- capitalization in the case of a capitalistic mo- 
nopoly does not necessarily result in lasting inconvenience 
to the consumer, for he may substitute; but a municipal 
monopoly paying high dividends on watered stock will 
either offer its finished product to the helpless public at a 
higher price, or at a lower standard of quality. 

The history of municipal monopolies is in general the 
history of all. An original period of private enterprise aided 
by public privileges saw the rapid rise of small industries 
to large corporations amid great public enthusiasm and no 
regulation. This was followed by an era of monopoly con- 
trol of city legislatures and city officials, when franchises 



MUNICIPAL MONOPOLIES 313 

were not asked but demanded, and when vast private for- 
tunes were amassed through the operations of corrupt and 
inefficient corporations. Then came the time when public 
sentiment became aroused and regulation was attempted; 
the concept came to be realized that a municipal monopoly 
is also a public service corporation, and as such is invested 
with a public interest. The relation of the public service 
monopoly to the city government has had a marked in- 
fluence on its methods and growth, especially in recent 
years, and much of the corruption and maladministration is 
the direct result of political bargaining between municipal 
departments and private interests. 

In summing up the main features in connection with mu- 
nicipal monopolies, it is apparent that the most important 
points needing emphasis are : the dependence of the public 
as a consumer, the resultant public interest attached to the 
monopoly, and the social effects of the monopolies on the 
daily routine of urban inhabitants, as evidenced in the 
problems of distribution and standard of life. The follow- 
ing chapters will take up in some detail the problems of 
transportation, gas, water, and electric companies, and it is 
largely left to the student to apply facts and figures to the 
concepts already laid down. 



CHAPTER XLI 

TRANSPORTATION 

Transportation within a municipality includes convey- 
ance from place to place by the aid of vehicles of some sort, 
— such as busses with either horse or mechanical power ; 
horse, cable, electric, or steam cars; and ferries of various 
kinds. The very nature of the business assumes a monopoly, 
since competition between street railway lines has been not 
only non-regulative, but actually destructive, and because it 
is practically impossible to grant more than one right of 
way over the same highway. This monopoly must exist 
under a grant of public privilege. The State gives to the 
city the right to make a contract with private or public 
interests for the right of way over certain streets, and to 
own and operate a plant for the purpose of conveyance. 
This contract is called a "franchise" and is usually made for 
a limited time (the average term being from twenty to thirty 
years). The franchise may impose few restrictions on the 
company in the way of repair of streets, quality or cost of 
service, or payment to the city for the right to operate. 
On the other hand, it may compel the company to make 
large payments to the city treasury for its franchise in 
addition to a periodical reduction in fares or in increase in 
the quality of service. Upon these specifications, regulation 
from without is based. 

A street railway company is generally a State corporation, 
owned or leased by individuals or private interests (except 
where municipal ownership and operation exists), holding 
a franchise from the city government and operating lines of 

314 



TRANSPORTATION 



315 



cars over certain streets or rights of way within or adjoin- 
ing the municipality. The problems of profit and loss, 
capitalization, bonded indebtedness and interest, common 
to business enterprises in general, are also evident in this 
case. The initial cost of the plant, added to the payments 
to the city for the franchise, plus a profit to stockholders, 
is the basis of the rate of fare. Deterioration of plant and 
fixtures occurs as in any other industry, entailing the neces- 
sity of a depreciation fund which may or may not figure in 
the basis of cost, according to the nature of the administra- 
tion of the company. Extension of lines to outlying dis- 
tricts, the supplying of new and more modern cars with 
the increase in population and progress, and the constant 
change in operating methods, due to invention and im- 
provements, are all elements in the cost of service which 
must be taken into account. In addition, the apparently 
simple privilege extended to the public of free transfers 
may entirely eliminate any possible profit to the stockholders 
and force the company to offer at the same time a poorer 
quality of service in the way of antiquated cars, roadbed, 
and personnel. 

On the other hand, the history of street transportation 
has been in many respects identical with that of the railroads. 
Early grants without sufficient compensation to the public 
or without effective restriction as to regulation were made 
by municipalities eager to obtain the convenience of a 
transportation service, which was offered on apparently rea- 
sonable terms. With the growth in population came the 
demand for a more efficient service. At the same time, in- 
vestors and promoters had found a rich field for their money 
and were reaping tremendous profits in dividends. Corrup- 
tion became common in the attempt to secure franchises. 
Over-capitalization and top-heavy bond issues forced some 
companies into bankruptcy and others into consolidation 
with competing lines. Dividends on watered stock re- 
mained high while huge rentals were paid by leasing com- 



3l6 TEXT-BOOK OF ECONOMICS 

panics for subsidiary lines. As a result the public suffered 
from poor service as well as no diminution in fares, while 
stockholders effectively smothered attempts at regulation or 
reorganization by the bribery of councils and city ofhcials, 
and the shrewd use of financial reports which failed to show 
the true business methods of the company. Consolidation 
of competing lines, either through actual purchase or leas- 
ing, has progressed, until almost every town and city has 
now one complete system, built up of short lines and operated 
under one management. The evolution of the merging of 
subsidiary companies and the dependency of the public on 
the transportation system has given to the industry all the 
salient features of a monopoly. 

The development of municipal transportation has been 
more rapid in this country than in Great Britain or Europe. 
The first street-car line was operated in 1859 in Baltimore, 
although Philadelphia had passed an ordinance in 1857 for 
the construction of car lines. By 1880 there were over 
2000 miles of trackage in the United States, including horse 
and cable cars. The change to electric power did not come 
before 1886, but by 1890 there were 144 electric lines. Be- 
sides these, there were 48 cable roads and 597 street rail- 
ways of other kinds. In 1898 the trackage had grown to 
16,000 miles, with a total of 1074 lines, of which over 900 
were operated by electricity. The marvelous growth of street 
railways in this country may be shown in a comparison with 
the steam roads as to the frequency of travel and income. 
For instance, in 1897, the frequency of travel on municipal 
lines compared to railroads, was as five to one; the net 
income per mile of the former was also much greater. By 
1902 the trackage in the United States was nine times greater 
in amount than in Great Britain, and the contrast was even 
more striking in comparison with Germany, France, and 
Italy. One reason for the slower growth in Great Britain 
is undoubtedly the preference for the city omnibus which 
operates more successfully over the narrow crowded streets 



TRANSPORTATION 317 

of the British city. In addition, the difference in relation 
of the continental city to the State as compared with the 
American municipality, explains the more deliberate and 
conservative methods of the city in England and Europe as 
to questions of franchises and regulation. 

On account of lack of competition and stability in kind 
of product, great administrative or executive ability has not 
been necessary. Owing to public ignorance and the con- 
solidation of all competing lines, the property became so 
safe that investment was considered gilt-edged and net 
earnings at times reached the total of 25 per cent on net 
cost of duplication. Dividends of over 30 per cent were 
paid on common stock and over-capitalization became a 
common procedure. Elevated roads and subways soon 
merged with the surface lines, thus preventing reduction in 
fares. Finance and politics were injudiciously mixed, and 
whole systems were recapitalized, reorganized, and renamed 
to furnish profits to promoters. As an illustration, one of 
the largest cities in the United States possesses an inefficient 
transportation service which is actually unable to meet 
public demands and which would be financially embarrassed 
if the courts or the city applied strict regulation. Built up 
of small lines, the holding and operating company pays 
high dividends to original stockholders, in addition to bond 
issues in return for leasing them. It is a crippled, corrupt, 
and certain monopoly which must be kept alive or the 
people loses its conveyance and convenience. 

It is thus apparent that monopoly in street transporta- 
tion was strengthened, especially in this country, by the 
system of granting franchises, in the eagerness of investors 
to place their money in that industry yielding the highest 
rate of interest, and in the corruption resulting from too 
close association of city administration with the private 
companies. Of late the franchise is being more carefully 
considered and the term shortened to allow for more strict 
regulation. The public is demanding more publicity of 



3l8 TEXT-BOOK OF ECONOMICS 

methods and accounts. Better service to meet changing 
conditions is being insisted upon, as well as the extension of 
lines to the ever widening boundaries of the city. The 
question of reduction in fares has come to be a legal one, 
since it involves possible deprivation of property. Bids for 
new transportation lines are now being made on the com- 
petitive basis, nvolving such specifications as annual pay- 
ments to the city treasury, low rate of fare with transfer 
and other privileges, or guarantee of improved service from 
time to time to meet municipal progress. Both here and 
abroad, investigation and regulation are now more or less 
common, not for the purpose of reviving competition or 
changing the methods of the business, but in order to insure 
to the consumer a reasonable service at a reasonable rate of 
fare. We cannot expect the transportation system to be 
anything but a monopoly under present city conditions, 
and therefore many of the present methods of regulation 
employed in the case of the capitalistic monopoly are un- 
wise and futile. But free publicity of business methods, 
strict regulation by the public authorities to insure better 
service and reasonable fares, and the growth of lines to 
meet the problems of distribution in population, — all these 
are logical and necessary. 

From a social viewpoint, the transportation system has 
done the municipality great service. As in the case of the 
steam railroads, it is extremely doubtful if such rapid de- 
velopment would have been made, provided public grants 
had been as carefully considered as at present, or if fran- 
chises had been limited to the modern short term of years. 
For investment is made, not only in a business with large 
opportunities for development, but also in one that will be 
safe during the lifetime of the investor. And a twenty- 
year franchise, with its regulative restrictions and specifica- 
tions, does not offer chances for the reaping of profits like 
the original long term grants, with no restrictions, and com- 
ing at a time when stock inflation, watering, and spurious 



TRANSPORTATION 319 

accounting were looked upon as legitimate methods of 
jBinance. This rapid development of street-car lines has re- 
sulted, not only in added convenience and comfort, but also 
in a more equitable distribution of population by allowing 
the laborer to live in open, sanitary parts of the city instead 
of in the warehouse district. As a consequence, many cities 
have now no real tenement -house problem since the poor 
are offered better living accommodations in outlying dis- 
tricts which they can accept on account of surface, elevated, 
and subway service. The problem of congestion is being 
solved by the transportation system, not intentionally by 
the companies themselves, but none the less surely. The 
presence of interurban electric roads brings neighboring 
towns into intimate association; suburbs are formed becom- 
ing easy of access; the city expanding in population does 
so along the line of least resistance (that of area); city 
boundaries are changed, adjacent villages are annexed, and 
the real estate agent bargains with the farmer to change the 
farm land into new streets and squares, where in a short 
time the human overflow will drift to settle down in modest 
homes miles from work, but nearer than the workers of 
fifty years ago without the transportation system. Then, 
too, the means of communication has not failed to influence 
business life. Ability to travel quickly has made possible 
the separation of factory and office. Manufacturing plants 
are no longer concentrated in certain well-defined districts, 
but are erected at varying distances from the business area. 
The carrying of farm products has already begun; mail 
and small parcels are transferred with ease and rapidity. 
Besides all this the growth of the electric service means the 
gradual elimination of horse power and with the passing of 
the animals from the streets comes a cleaner and healthier 
municipality. 

In conclusion, it may be said that the city transportation 
system, as an illustration of a municipal monopoly, presents 
many points of interest not found in the ordinary capitalistic 



320 



TEXT-BOOK OF ECONOMICS 



monopoly. The cost of production is based on the elements 
of operating expense, franchise rental to the city, profit 
to stockholders, and depreciation fund. Operating expense 
may be divided into the common elements of cost, including 
labor, materials, repairs, etc. Payments to the city are 
based on either gross or net earnings of the company, to be 
paid annually or in lump sums. (This is, in most cases, 
supposed to be a sufficient remuneration to enable the city 
to purchase the plant at the end of the franchise.) Depre- 
ciation funds are not necessary of analysis, and the question 
of profits involves the student in questions of municipal 
government and extraneous regulation, neither of v^hich 
needs to be discussed in detail. Looking upon the system as 
a v^hole, it is intrinsically a monopoly, and must remain so 
in the interests of convenience and efficiency, under present 
city conditions. The public is dependent upon speedy 
and adequate conveyance, and competition is impossible. 
Problems of distribution and housing can be solved by the 
proper development of street railways, coincident v^ith 
municipal progress. Better and more easy communication 
connotes greater comfort, a better division of labor, a higher 
standard of living, and an increased business development. 
The questions of tremendous profits and fictitious capitali- 
zation are capable of solution by State or municipal regula- 
tion, and the solution depends on a sound business basis of 
administration and a clearer conception of the status of the 
transportation system. 

TOPICS FOR CLASS DISCUSSION 

1. Contrast several large cities in regard to the effect of the trans- 
portation system on distribution of population, opening up of new areas, 
and the division of labor. 

2. Illustrate concretely the inevitable merging of competing lines 
within a municipality. 

3. Diagram the elements of cost in a transportation system. 

4. What is the best method of regulation? 

5. Is the transportation system essentially a private industry? 



CHAPTER XLII 

WATER 

The discussion of the transportation problem brought out 
many of the general characteristic features of municipal 
monopolies, and therefore some of the points of interest in 
the question of water supply will be touched upon only with 
passing comment, details being reserved for those features 
peculiar to this particular industry. 

Water is an essential to human life for several purposes. 
As human beings form growing communities, the uses for 
water increase in number and intensity. Formerly, natural 
springs and streams were made use of by mankind, and in 
order that a plentiful supply be obtainable, cities were 
located along rivers, bays, and mountain streams, and each 
citizen helped himself from the common spring or fountain 
for drinking and bathing. Later on, individual wells were 
dug for reasons of convenience, and rude systems of open 
conduits built to supply public baths, fountains, and gardens. 
In the Middle Ages, the utter lack of any adequate city 
water supply resulted in filthy streets and houses, engender- 
ing disease and death. Since the installation of water mains 
for running water, mankind has discovered important 
relations between an efficient municipal plant and the social 
problems of comfort, cleanliness, health, safety, mortality, 
and civic beauty. Flowing water in buildings for drinking, 
washing, and plumbing has increased our comfort, cleanliness, 
and health in no small way. High pressure hydrants sta- 
tioned throughout the city have made for an efficient fire- 
fighting system, such as was not possible a century ago. 
Y 321 



322 TEXT-BOOK OF ECONOMICS 

The installation of public baths, swimming pools, and park 
fountains brings a ready supply to the poorest and insures 
greater cleanliness, which in turn influences the mortality 
rate. The modern municipal street-cleaning department 
now uses vast quantities of water for flushing the dusty streets 
at night, and parks and public gardens are kept grassed and 
flowered even in dry seasons. 

These facts argue for water as an economic public neces- 
sity. Being such, it must be in abundance and of pure 
quality. Moreover, the supply must at least equal the 
demand. Every day sees new uses to which pure running 
water is put, each year new streets mean the construction 
of new mains, the installation of additional fire hydrants, 
and the increase in pressure at the central power house. As 
civic pride grows, more water is necessary for the cleaning 
of streets, public buildings, and private houses, as well as for 
baths, fountains, hydraulic power, and commercial uses. A 
water company has a most complete monopoly in a munici- 
pality, since the dependence of the public and the absence of 
an adequate substitute forbids conditions where price might 
naturally fall to a minimum with the quality at a maximum. 

What are the two essential elements in the problem? 
First, an abundant supply of pure quality and at a good 
pressure ; second, the cost to the consumer. The discussion 
of the first involves the student in the more or less social 
questions of the standard of living, safety, and mortality. 
But in addition, certain interesting phases, such as the origin 
of supply, kind of pressure, and determination of quality, are 
of the utmost importance, for upon them the adequacy 
of the plant is based and the cost to the consumer largely 
determined. 

The supply depends on several conditions, namely, 
proximity to a body of water, engineering obstacles, and size 
of the municipality. An inland community might find it 
difficult to procure an abundant supply of water for its needs, 
because it is situated far from any river or watershed. Or 



WATER 323 

the carrying of the water for even short distances may entail 
vast engineering processes. The growth in population, too, 
bears a relation to the supply, since a stream which provided 
for all needs fifty years ago is now inadequate for the same 
municipality under present conditions. Invention and im- 
provement now assure several forms of supply : the carrying 
of pure spring water for great distances by means of conduits 
and aqueducts, the accumulation in standpipes and reservoirs, 
and the modern system of filtration plants where water from 
rivers or other streams is passed through filter beds and on to 
the city mains by means of high pressure. Pressure may be by 
gravity in cases where the natural supply is above the city 
and where artificial reservoirs are elevated ; or by pumping, 
in which case a constant stream is forced through mains and 
pipes, to be increased at will according to the demand. The 
determination of quality is of special importance in reference 
to the mortality rate, as typhoid epidemics are now easily and 
directly traceable to an impure water supply. The quality 
of the water also affects the washing of clothes and the 
cooking of foods. Filter beds are now considered as an 
essential part of a plant, since running streams suffer from 
factory and other pollution. The many devices for water 
sterilization and the widespread use of bottled spring water 
show to what extent the public insists upon a high quality of 
purity under present city conditions. 

Turning to the second element in the problem, that of 
cost to the consumer, it will be seen that the discussion is 
based largely on the question of municipal taxation. It is 
not necessary to go into an analysis of taxation in detail, but 
a cursory glance at the main features will show the points of 
contact. The consumer, as a householder or tenant, is also 
a citizen, and as such pays certain fees to the municipality 
for services rendered in the form of taxes or rates. The 
water tax is supposed to represent a per capita assessment 
for the payment of water used by the municipality. Whether 
this tax includes payment for fire protection and street wash- 



324 TEXT-BOOK OF ECONOMICS 

ing depends on the method of taxation. In recent years 
water meters have been widely used, being installed in in- 
dividual buildings and affording a more accurate measure- 
ment of the per capita assessment. But as this payment 
would not include water for general municipal purposes, 
the ordinary tax rate would have to be increased by an 
amount necessary to pay for them. The water rate is high 
or low, depending on the cost of production, the method of 
taxation, the use of meters, and the amount of profit to the 
water company. The cost of production is computed in 
a similar manner to the cost of production in a transportation 
company, and the ease with which an abundant supply is 
obtained and the necessary processes for filtration are two 
important factors in the estimate. But the question of cost, 
looked at from either the standpoint of the meter rate or that 
of the ordinary tax rate, is affected largely by the status of the 
water company within the municipality, — in other words, 
whether it is a private concern or one owned and operated 
by the city itself. 

The supplying of water in a public manner came in about 
the middle of the seventeenth century in America, though 
prior to this some English and European cities had water- 
works on a more or less simple scale. The early American 
plants were operated on the gravity principle from small 
reservoirs fed by springs, and it was not until 1761 that the 
system of pumping was tried. At the time of the Revolution 
there were only three water companies, and by 1800 the 
number had grown only to sixteen. With one exception, 
all were owned and operated by private interests. With 
the rapid development of urban life came the demand for a 
central supply, and as franchises were easily obtained and 
capital was eagerly seeking investment, promoters grew rich on 
the profits of the private water companies. By 1898 there 
were over 3000 plants in the United States (both private 
and municipal) and about 150 in Canada. The era of most 
rapid construction came in the last quarter of the nineteenth 



WATER 325 

century. From a monopolistic viewpoint, the English and 
European cities lack interest as illustrating the history of the 
rise of waterworks, as they early turned their attention to 
municipal ownership and operation, and the development 
of private plants was correspondingly dwarfed. But the 
history of waterworks in this country is marked by many of 
the features of the capitalistic monopoly, — the firm belief 
in constitutional protection to private property and the lax 
business methods of the early municipal authorities. Be- 
sides these features, the reluctance of the municipal govern- 
ment to venture into the operation of the different social 
industries, such as transportation, gas, and water, was a 
strong factor in the giving to them protection for the mo- 
nopoly. Since 1890 the concept of municipal operation has 
gained much ground, and the change to a greater protection 
of the public as against private interests is slowly but surely 
being made. Inasmuch as the problem of municipal owner- 
ship and operation is to be analyzed in a later chapter, 
further discussion seems at the present unnecessary. But 
it must be understood, however, that in computing the cost 
of water to the consumer, who is at the same time a citizen, 
the estimate radically changes when municipal ownership 
and operation prevails. For example, the property tax is 
usually eliminated (though of late in Great Britain munici- 
pal monopolies pay property taxes to the State) profits 
can no longer be considered as part of the cost, and franchises 
do not need to be purchased. In this case, the burden may 
then fall on the consumer in the form of a general municipal 
tax, a fraction of which represents, not only the payment for 
water actually used, but also for fire protection, clean streets, 
and other municipal comforts. 

Several points of interests may be emphasized in summing 
up the problem of municipal waterworks. It is impossible 
to provide abundant, pure water free of cost, and as yet 
no substitute has been found. As in the case of transpor- 
tation companies, competition is ruinous and impossible, — 



326 TEXT-BOOK OF ECONOMICS 

therefore, an absolute monopoly of location exists. The 
cost to the consumer is governed largely by local conditions, 
varying with the section of the country and the ability to 
procure the necessary supply, — therefore, a universal 
standard of cost is not to be found. With the increasing 
aggregation of population come new uses for water and new 
problems, social in their character, having their origin in the 
relation of the water supply to our needs of comfort, health, 
and protection. And along with the economic side of the 
problem is found the political aspect of municipal taxation, 
which represents the usual method of payment (especially 
in cases where the plant is municipalized), and which illus- 
trates the peculiar relation of this particular form of monopoly, 
not only to the municipality, but also to the citizen as a 
consumer. 

TOPICS FOR CLASS DISCUSSION 

1. State some economic results coming from an adequate water 
supply. 

2. Give concrete illustration of some municipal water supply, esti- 
mating cost of production in detail. 

3. Should water be free? 

4. Should profit accrue to a water company? 



CHAPTER XLIII 

GAS AND ELECTRICITY 

The study of the problems of transportation and water 
has brought out the general monopolistic features of those 
industries vested with a public nature. The reasons for 
being a monopoly were found, in the main, to be common 
to all. The inevitable death of competition through the 
advantage of location or merging was remarked upon, and 
the status of the company as a public service industry reason- 
ably fixed, so that a clear conception of its relation to the 
city might be gained. It therefore seems unnecessary to 
state many of the principles already emphasized, and though 
the gas and electric light companies afford excellent illustra- 
tions of the operation of municipal monopolies, the present 
discussion will treat in detail only those phases of monopoly 
peculiar to them alone. 

Gas as an illuminant was used only shortly before the 
beginning of the nineteenth century. Philadelphia was partly 
lighted in 1796, while several other cities both here and 
abroad had already made use of natural gas. But it was 
not until after the year 1800 that artificial water-coal gas 
was manufactured in practical commercial quantities and its 
use became a common thing. A private company was 
chartered in London in 1810, and both Manchester and 
Glasgow obtained plants in 181 7. An offer was made in 
1803 by private interests to the city councils of Philadelphia 
for the lighting of the streets at night. By 1835 the use and 
manufacture of artificial gas had become a regular municipal 
industry, and the illumination of at least the larger towns and 

327 



328 TEXT-BOOK OF ECONOMICS 

cities was considered essential. As in the case of the trans- 
portation and water companies, little effort was made to 
protect the public interest, and, in consequence, gas franchises 
were obtained with no restrictions as to time or regulation. 
Both in Europe and the United States, the manufacture of 
artificial gas for public use began before the tide of municipal 
ownership and operation had set in. This, of course, gave 
private initiative no check and allowed for a laissez faire 
policy which helped the promoting of over-capitalization 
and high dividends at the expense of exorbitant rates to 
consumers for gas of a poor quality. As a result, when a 
change to municipal ownership has taken place, it has been 
almost invariably by the purchase of the private plant and 
not by the erection of a new one by the city. 

Both illuminating and fuel gas are usually manufactured 
within the municipality and passed through underground 
mains and pipes to street lamps, private dwellings, and 
public buildings. An abundant supply, of good quality for 
illumination and at a good pressure, is necessary for comfort. 
Though the supply may often be abundant, the quality may 
be poor or the pressure low. Mains and piping may be worn 
and leaking. Burners may be installed which smother the 
flame so that more burners must be lit to obtain sufficient 
reading light. Devices are only too common for cutting 
down operating expenses at the expense of the consumer, and 
thereby increasing the profit which goes into the pockets of 
stockholders. The history of gas works shows that the 
consumer as an individual has been largely unprotected, and 
even the advent of electric lighting has not destroyed the 
monopoly of the gas company. For instance, a gas company 
is able to manufacture a good quality of gas at sufficient 
pressure for illumination at about thirty cents per thousand 
cubic feet. Now, taking the gas rates as they are at the 
present time, it is obvious that enormous profits are made. 
One authority states that east of the Rocky Mountains gas 
can be manufactured and sold at a profit on the structural 



, GAS AND ELECTRICITY 329 

value of the plant for seventy-five cents per thousand feet.^ 
Many gas companies do not manufacture their own supply, 
but buy it from other companies at rates ranging from forty- 
five to sixty cents. Generally speaking, gas is sold to the 
consumer in large cities at the present time for about one 
dollar per thousand cubic feet. A number of attempts in 
recent years have been made to compel the companies to 
reduce the rates, but it has been found by the court that a 
sudden reduction in price would affect the value of the 
holdings of innocent stockholders. It can therefore be 
safely assumed that many of the present companies are 
heavily over-capitalized and the difference between the cost 
of production and the price paid by the consumer is monopoly 
profit. One of the oldest of the American cities with a 
present population of over eighty thousand constructed its 
plant in 1852 (which was taken over by the city in 1867), 
and the price of gas was reduced from three dollars per 
thousand cubic feet to the present rate of one dollar. This 
reduction is partly due to the efficient management under 
strict municipal supervision and the consequent elimination 
of unnecessary profit ; but in part it is also due to a fall in 
the cost of production owing to improvements and better 
business methods. 

Looking for a while at the social effects of the use of gas 
both for illumination and fuel, it is apparent, first of all, that 
street lighting not only insures greater comfort and con- 
venience to citizens but also greater safety. It is difficult to 
estimate the value of street lighting as an aid to proper 
police and fire protection, but no one will contradict the 
assumption that the inhabitants of a well-lighted city are 
better protected against burglary and incendiarism than 
those of the antiquated ill-lighted municipality. Since the 
introduction of gas into the home for lighting purposes, the 
householder lives in greater comfort and ease than ever 
before, public buildings are used to better advantage and 

* Edward W. Bemis, Municipal Monopolies. 



33° 



TEXT-BOOK OF ECONOMICS 



with less danger at night, office buildings need less attendance 
in the matter of lighting, and the use of fixtures connotes 
a convenience that our ancestors could not realize. The 
rapid, though fairly recent, growth of the gas meter system 
has made possible a reasonable check on waste as well as on 
the business methods of the gas company. Fuel gas for 
stoves and heaters is manufactured at a smaller cost and at a 
different quality. This makes possible greater ease and 
dispatch in the cooking of foods and permits of better living 
accommodations under the "flat" system. In addition we 
have a cleaner method of cooking and eating, allowing for the 
elimination of ashes and smoke, and keeping the house 
cooler in summer. Gas for commercial purposes, such as 
fuel for engines, etc., is also manufactured in large quantities 
and helps to solve the problem of a smoky city. 

These facts merely show the present dependence on gas as 
a commodity. The citizen pays in his tax rate for street 
lighting, thus obtaining greater protection; in addition, he 
pays the rate demanded by the company for his illuminating 
and fuel gas, this rate being the cost of production plus an 
enormous profit from monopoly. It is impossible for the 
individual to protest effectually against the giving of special 
rates to certain favored individuals by the company. At 
times the pressure may be low or the quality inferior, — but 
in the absence of franchise stipulating a certain standard or 
providing for regulation, the private company can do as it 
pleases. The public is dependent on gas, as it is on water; 
the company has been allowed to take a position in which it 
can defy ordinary competition or the desire for substitution. 
If the franchise stipulates that the company shall light the 
city free of charge and keep street lamps in repair, it is 
reasonably certain that the gas rate to individual consumers 
will be higher by an amount necessary to repay the company 
for that expense. Then, too, the reluctance of the courts to 
vitiate the contract of the company with its stockholders 
often prevents any compulsory reduction in the price of gas 



GAS AND ELECTRICITY 33 1 

when the company is over-capitalized and the dividend so 
high that monopoly profits are necessary in order to avoid 
a reorganization by the stockholders themselves. Taking 
these elements of the problem into consideration, it is not 
difficult to understand the monopolistic nature of a private 
gas company within a municipality. 

Electric lighting dates from about the year 1880, and by 
1890 many of the larger cities, both in this country and abroad, 
had plants, either municipalized or operated by private 
interests. By 1899 almost 600 plants had been erected 
in this country alone, and the United States Census reported 
3620 in 1902. In 1897 Great Britain had 121 electric light 
works, and Germany was not far behind in construction. 
But the movement everywhere, and especially in this country, 
has been most rapid in the smaller cities and towns ; and on 
account of the fact that electric lighting came into use after 
the wave of municipal ownership and operation had started, 
a very large proportion of the plants were municipalized. In 
1903, 22 1 per cent of the plants in the United States were 
owned and operated publicly. 

Electricity, as a means of light, heat, and power, is more 
and more rapidly displacing gas. Its convenient individual 
management in private dwellings and buildings, its greater 
efficiency in luminosity, and its advantage in transmission all 
tend to make it preferable. Several interesting and distinct 
phases of the industry may be noted. For instance, elec- 
tricity is not stored like gas for constant future delivery, but 
is produced instantaneously with the demand. It is seen 
that there is both a maximum and a minimum demand de- 
pending on the time of day, etc. The maximum demand 
determines largely the fixed charges (which include the items 
of rent, taxes, interest, and depreciation), and that part of 
operating expenses called fixed expenses. These fixed 
expenses embrace salaries, wages, and fuel. When the 
minimum demand changes to maximum, variable expenses 
are determined, for the output change affects increase or 



332 TEXT-BOOK OF ECONOMICS 

decrease of labor, materials, fuel, etc. On this account, the 
usual practice is to give special rates to individuals or firms 
who regularly use a certain amount of current all the time. 
This method is analogous to the giving of discounts to large 
wholesale customers of an ordinary capitalistic monopoly. 
Abroad, rates are based on meter calculations, but in the 
United States the contract-discount system is still held to. 
This commercial lighting by the electric light companies 
is the most lucrative part of the business. Street lighting is 
usually done on low terms which compensate the city for a 
franchise tax. Arc lighting is only a small part of the com- 
mercial branch of the industry, and the real profit comes from 
incandescent private service and commercial power service. 

Approximately the same principles can be applied to the 
industry of electric lighting as have been applied to that of 
gas. The same items in the cost of production may be found 
and the same illustrations of lack of competition. But be- 
cause this industry is of such recent development, we find a 
more careful wording of franchises and a more strict regula- 
tion of the industry by the municipality. The large pro- 
portion of municipal plants all over the world illustrate to 
what extent the public has chosen to assume the functions of 
a business manager with regard to this new industry. As 
in the case of gas, new uses are constantly being found for 
electricity. The electric stove has now passed the experi- 
mental stage and will ultimately displace the coal range 
and gas stove. Electric house heating is not yet a practicality, 
but it promises to be one in the near future. The wire trans- 
mission of power and light connotes greater cleanliness, 
ea::e, and convenience than gas itself. 

These two monopolies of gas and electricity are producing 
commodities that the world needs for its comfort and safety. 
It is apparent that they must be treated as monopolies; 
as such they are amenable to public regulation and cannot 
by the process of competition be made to produce an efficient 
product at a reasonable price. The concept of municipal 



GAS AND ELECTRICITY 333 

ownership and operation is merely the idea that the munici- 
pality shall manage and own a monopoly which shall be 
run on an ordinary business basis, for the purpose of furnish- 
ing the consumer with the highest quality of product at the 
lowest cost possible. A municipal monopoly is a monopoly, 
whether privately managed or municipalized, and it is destined 
to remain a monopoly under present city conditions. 



TOPICS FOR CLASS DISCUSSION 

1. What has been the economic effect of the displacement of lamps 
by gas or electricity in the home? 

2. Is the electric light company a natural monopoly of location in 
the same way that transportation is? 

3. Estimate the elements of revenue and expense in the case of a 
model gas or electric light company. 

4. Procure figures to show the profits of the average gas or electric 
light company either in the United States or abroad. 



CHAPTER XLIV 

MUNICIPAL OWNERSHIP AND OPERATION 

In the foregoing chapters certain industries were considered 
in the light of municipal monopolies. The monopolistic 
tendencies were analyzed and the results shown. But the 
industries were assumed to have been privately owned and 
operated, thus enabling the student to more easily class them 
with the well-known capitalistic monopoly and to show more 
clearly the nature of a private company doing a public busi- 
ness. In order to include all phases of municipal monopolies 
in the study of the problem, the principles and characteristics 
of municipal ownership and operation should be carefully 
understood and the history of the movement reviewed. 
The concept of municipalizing industries for public conven- 
ience is taking increasing hold of the minds of business men 
and administrators alike, and the fact that so many success- 
ful examples of the principle exist seems to point to its prac- 
ticability as a working method of controlling municipal 
monopolies. 

Municipal ownership and operation is simply the assump- 
tion of business functions by a municipality with relation to 
a certain industry. For instance, the franchise of the city 
gas works might terminate at a time of public disapproval 
of the service and the plant be taken over by the city and oper- 
ated by a special municipal department or bureau. In this 
case, municipalization has taken place, and the relation of 
the industry to the city and to the consumer has radically 
changed. In ordinary business life changes and improve- 
ments of any kind are only made for the reason that greater 

334 



MUNICIPAL OWNERSHIP AND OPERATION 335 

efficiency with less cost may result in production. To apply 
this principle to the problem at hand means that, if public 
industries are to be looked upon as amenable to business 
methods and ideas, the change from private ownership and 
operation to municipalization must assure to both city and 
citizen consumer alike greater efficiency with less cost. It 
will therefore be necessary to accept the burden of proof and 
use the two items, efficiency and cost, as criteria in order 
to accept the concept of municipal ownership and operation 
as a practical one. 

Efficiency connotes abundance in supply, ease in trans- 
mission or conveyance, and comfort in use. When the citi- 
zens of a municipality turn to public operation for relief 
from inadequate service or high rates, they expect that the 
service shall improve for the very reason that the industry 
is no longer running on a profit basis, and therefore there 
need be no cutting down in operating expenses. The heads 
of departments are not hampered by the demand for surplus, 
and consequently there is no necessity for inferior materials, 
labor, or machinery. Again, a private company does not 
make extensions of tracks or mains unless it is to reap a 
reasonable profit. Under municipal ovniership and opera- 
tion, this conformation of the service with the ever widening 
city area is one example of greater efficiency, and in return 
for such invaluable social service rendered to the munici- 
pality, greater frequency and volume of travel is certain. 
When the inhabitants of a municipality are considering the 
operation of a street-car system or waterworks, the ques- 
tion naturally arises : Can the governmental authorities run 
the plant with the same or less expense and at the same time 
offer better service at the same rates ? Part of the enthusiasm 
for municipal ownership is doubtless due to a pride in the 
management of a public enterprise, but a far larger part 
comes from the feeling that it is possible to obtain better 
service when the profit-making element is eliminated from 
the problem. 



336 TEXT-BOOK OF ECONOMICS 

The item of cost is one that affords material for endless 
discussion. The opponents of this method of operation are 
perfectly certain that the rates are far lower under private 
management than under public management. Figures are 
accumulated to show that municipal ownership and operation 
involves the burden of bonded indebtedness, which must be 
borne by future generations. It is argued that municipal 
authorities are not businesslike in their methods, that waste 
occurs, that laxness in administration is the rule. Further- 
more, it seems to augur failure that so many municipalized 
plants are operated by political henchmen who hold their 
positions through the favor of some boss. Under our present 
system of government, with its parties and political dis- 
placements, it would seem as if rotation in office was not 
helpful to sound business methods or results. But a few 
facts concerning the growth of this new idea will show the 
success or failure of the movement as a whole. 

In Germany nearly every large town or city has munici- 
palized the water supply, means of communication, lighting 
service, and even slaughterhouses and milk depots. The 
middleman is eliminated and the product sold at cost. 
Better service is obtained than through private operation, for 
the public feels itself responsible for the efficiency of the 
system. By 1880 the idea of municipal ownership and oper- 
ation had gained so much ground in Great Britain, that only 
a small percentage of plants constructed since then were 
privately owned and oper.o,ted. In 1906, 123 cities had 
publicly operated street-car lines and over half of the entire 
street trackage in that country to-day is municipalized. 
The extension of lines under city management has been over 
ten times greater than that under private control. With this 
has come greater frequency of travel, while the fares have 
been reduced on the average of one third. In comparing 
British gas service it is found that in 1906 the average 
municipalized gas plant supplied the consumer with a 
good quality of gas at less than seventy-eight cents per 



MUNICIPAL OWNERSHIP AND OPERATION 337 

thousand cubic feet, while the private companies charged 
slightly less than eighty-four cents for the same service. 
Birmingham has a sliding scale of from forty-four cents 
to sixty cents, and Manchester and Glasgow have rates 
of fifty-four cents and fifty cents respectively. There are 
at present over 270 towns and cities owning and operating 
their own plants and selling their product at a lower rate 
than that of the private concerns. In addition to a saving 
to the consumer, the municipal authorities in all cases have 
sought to improve the social conditions of the community 
through improvements in quality and by the use of slot 
meters and gas stoves. The development of municipal 
ownership and operation in the United States has been re- 
tarded by the reluctance of the State, in giving adequate 
power to municipalities for the owning and operating of 
public utilities. In 1906 there were twenty-five municipal 
gas plants and over a thousand electric light plants. Thirty 
large cities, of a population over 100,000, now manufacture 
their own gas, and considerably over half of the towns and 
cities own and operate their waterworks. In almost every 
case the cost of service is lower under municipal ownership 
and the standard of efficiency in many ways considerably 
higher. The municipalization of street-car lines has rarely 
been tried in this country, and therefore this industry affords 
practically no illustrations of value. 

Taking the movement as a whole, the first result obtained 
is the financial gain due to elimination of private profit. 
Even in those cases where the cost of service remains the same 
after the transfer from private to public ownership, any 
surplus accumulated is turned into the city treasury to pay 
off the bonded indebtedness or to reduce the general tax 
rate ; or where this is not done, better service is effected by 
the extension and improvement of the system. A second and 
more important result is the social betterment which has 
invariably come from municipalizing industries of a public 
nature. Great Britain and Germany especially testify to 



338 TEXT-BOOK OF ECONOMICS 

greater civic spirit, greater cleanliness, reduced mortality, 
and increased comfort and safety. The public nature of the 
industry seems to demand public management. Being a 
monopoly, it is a question of either private or public operation. 
The evils of over-capitalization, exorbitant rates, and high 
profits are not coincident with public management, as shown 
by experience. In the matter of wages, too, ample material 
is found showing that conditions are preferable when the 
municipality is in control. The German cities each con 
tribute from transportation revenues a definite annual sum, 
based on wages, which is used for the betterment of labor 
conditions. Comparing the rate of wages between municipal 
and private systems, it is found that wages are considerably 
higher under the former, while at the same time the length 
of day is shorter. Since the introduction of municipal 
ownership and operation, wages have risen about 50 per cent 
on the average, and labor settlements have been made with 
less friction and greater permanency. Speaking generally, 
politics play a small part in municipalization as a matter of 
fact, though it would seem as if political chicanery would 
naturally be present. The burden of taxation has been 
lightened for the reason that real estate values are affected 
by extension of service, living conditions are improved, 
and cost of service is reduced. A political advantage may 
be seen in the elimination of antagonism between private 
interests and the city government. Under municipal owner- 
ship and operation it is no longer possible for private corpora- 
tions to control city councils. 

While in Great Britain and Germany the change from 
private to public management was made to obtain better 
service at a lower cost, American experiences have grown 
out of dissatisfaction with extreme over-capitalization, enor- 
mous private profits, and corrupt connections of the vested 
interests with municipal governments. "As long as cor- 
porations inflate their securities and place a burden on the 
public in paying their dividends; as long as corporations 



MUNICIPAL OWNERSHIP AND OPERATION 339 

obtain franchises and capitalize them only to form mergers; 
as long as they seek special privileges only to evade the higher 
duties of honest public services — just in so long will it 
be necessary to understand that the municipality can and 
will get better and cheaper service by serving itself . . . and 
when the municipalities realize that the people know that 
they can serve themselves and are inclined to do so, the 
corporations will give the people the service they are entitled 
to. If the corporations do not learn this lesson, then they 
can only blame themselves if the people being ruined find a 
remedy in municipal ownership." ^ 

Municipal ownership and operation is not a dream of 
a theorizing socialist, but a business proposition based on the 
concept of the greatest efficiency to the consumer at the small- 
est possible cost. It does not include the business concept of 
money profit to stockholders. Promoters find no opportunity 
for placing capital under such a system. Its most valuable 
returns are a more highly developed sense of responsibility 
in business management by the consumer as a citizen, the 
social betterment arising from greater extension of service 
to meet changing city conditions, and the standard that is 
definitely set by the public for the highest quality of product. 

TOPICS FOR CLASS DISCUSSION 

1. What are the strongest argximents against municipal ownership 
and operation? 

2. Should the city government be allowed to become a business 
manager? 

3. What would be the probable effect of municipal ownership and 
private operation? 

4. Make a detailed analysis of the elements of cost of production of 
a plant, both under private and public management. 

5. Would the increase in tax rate due to bond issues for the pur- 
chase of a public industry be a compulsory investment? 

6. Should a municipalized industry show any profit? 

'"Municipal Ownership of Lighting Plants," by Jos. Bendy, in the 
December, 1907, number of American Municipalities. 



BOOK VIII 



CHAPTER XLV 

INTRODUCTION TO THE THEORY OF DISTRIBUTION 

Economics may briefly be defined as a science whose sub- 
ject-matter is Wealth. Chemistry deals with the elements 
and their various compounds, Physics with the laws of force 
and their many manifestations, Astronomy with the heavenly 
bodies, Biology with the laws of life. Each science has one 
central theme which differentiates it from its sister sciences 
and upon which the various subdivisions of that particular 
field of knowledge are built. In the science of Economics 
that central theme is Wealth. 

We are fortunate in having a theme which hardly requires 
a definition. The difference between living in wealth and 
poverty is apparent to every lay mind. There can be little 
doubt as to what one means when he speaks of the wealth 
of the United States. One need only call to mind the poverty 
of India or the Sahara Desert and its meaning becomes clear. 
Wealth comprises all those things which make life worth 
while. With nations it consists of fertile fields, rich deposits 
of minerals, and forest-ckd mountains. With individuals 
it consists of all those material goods which make possible 
a high standard of living. A miser hiding his gold and living 
in squalor does not suggest the economist's concept of wealth. 
Back of the concept of wealth stands that of welfare. 

Thus far we have thought of wealth in only one connection, 
viz. how wealth is created. This division of Economics we 
have termed Production. It has been seen that there are 
three factors engaged in all production, — land, labor, and 
capital. We were logical, then, in discussing under the sub- 

340 



INTRODUCTION TO THEORY OF DISTRIBUTION 341 

ject of Production all the means whereby any of these factors 
could be made more efficient productive agents, as irrigation, 
industrial education, and large-scale production. 

We now come to the second half of the science of Econ- 
omics, known as Distribution. It is essential to study the 
origin of wealth and how the wealth of a people may be 
increased, but it is equally necessary that one should know 
how this wealth is distributed, i.e. divided among the factors 
taking part in its creation. This will mainly be the theme 
of the book from here on. 

Were we living in a much earlier age, we should need no 
theories of distribution, and Economics would be a much 
simpler science than it is. To primitive man the problem 
of distribution was easy of solution. Whatever he made 
was his own. There was a direct relation between his efforts 
and the rewards for those efforts. If he worked five hours, 
he received a definite return ; if he worked ten hours, he re- 
ceived practically double the amount. The whole product 
was his own. There was no capitalist to be reckoned with, 
requiring interest charges, no landlord to whom rent must 
perpetually be paid. All was his. 

A complication in this simple wage relation arises, however, 
as soon as man leaves the primitive condition of supplying 
all his needs and depends upon an exchange of goods with 
some of his fellows to satisfy some or most of his wants. 
But even greater complications arise when the tool owners 
become a separate class from the tool users, as is true in the 
organization of modern industry with its factory system. 

The wage system of payment, along with these other com- 
plications in the organization of industry just mentioned, 
makes the subject of Distribution the most difficult as well 
as the most interesting part of our science. To a large degree, 
the field of Production has been cultivated so thoroughly 
that many of its truths seem axiomatic. The field of Distri- 
bution, on the other hand, is still in a somewhat experimental 
stage of cultivation. Economists of widely varying schools 



342 TEXT-BOOK OF ECONOMICS 

of thought frequently differ in the fundamentals of this part 
of their science, and almost always in the applications they 
would make of even those fundamentals on which they agree. 
Of no science can it be more truly said than of Economics 
that the last word on the subject can never be written until 
the end of time. 

In order that the student meeting the subject for the first 
time may not needlessly be confused, it has been the steady 
aim in these pages to present a consistent, logical presenta- 
tion of but one viewpoint. This will at least have the ad- 
vantage of greater simplicity than would otherwise be possible. 
A mastery of one well-accepted viewpoint will then afford 
a basis for an intelligent criticism or appreciation of opposing 
viewpoints. 

In the first part of the field of Distribution we shall discuss 
the various theories which underlie the division of the fruits 
of industry. This will lead us into a discussion of the theo- 
ries of rent, interest, profits, and wages, as "land " gets its 
share of wealth as rent, capital as interest, exceptional organ- 
izing ability as profits, and labor as wages. 

TOPICS FOR CLASS DISCUSSION 

1. In Economics why is the emphasis laid to-day on the subject of 
Distribution rather than on that of Production? 

2. What idea Hes back of the expression "distribution of wealth"? 

3. What are the different methods by which people obtain their 
incomes? 

4. How can a chair be said to be distributed to the labor and capital 
creating it? 



CHAPTER XLVI 

THE THEORY OF RENT ' 

Let us picture in our minds two separate tracts of land in 
the great wheat-growing belt of the United States, each an 
acre in size. Every spring the two farmers owning them 
go out to plant their grain. They may use the same quality 
of fertilizer, the same kind of grain, and the same kind of 
plow, and have the same efficiency in their labor force. In 
the fall one farmer reaps twenty bushels, the other fifteen. 

To what can we attribute this difference in yield of five 
bushels per acre? In all production there are three 
factors, as we have already seen, — land, labor, and capi- 
tal. On these two imaginary acres the capital and labor 
were respectively identical. This being the case, there 
remains but the third factor to which we can attribute this 
extra growth of five bushels. That is land. This extra 
return of five bushels' is the income which we can attribute 
to the better acre because of its superiority over the poorer 
one. In Economics such an income we term "rent." 

Thus one sees that economic rent arises because "land" 
aids man unequally in production. In one place it yields 
fifteen bushels, in another twenty. If we are thinking solely 
of agricultural communities, this superiority usually takes 
the form of greater fertility, thereby giving higher rents for 
certain districts than for others. If, however, we are think- 
ing of city land or truck-farming land lying adjacent to a city, 
the location becomes the chief cause of superiority and hence 
of variations in the amount of rent. 

Again, let us picture to ourselves two retail stores of equal 

343 



344 TEXT-BOOK OF ECONOMICS 

attractiveness as far as the building and goods sold are con- 
cerned, and each with equally efficient management. One 
is located on the outskirts or edge of the business district, 
and the other is near the center of one of the busiest thorough- 
fares. At the end of the year the net profit of the one store 
may be a thousand dollars, while the net profit of the other 
is two thousand five hundred. To what, then, must we 
attribute this difference in earning power ? Surely it cannot 
be accredited to labor, for in our illustration we assumed 
that in each case it was equally efficient, nor can it be attrib- 
uted to the physical equipment of the stores, for again we 
have assumed an equality. The difference, then, can only 
be attributed to the third factor in production, namely, land. 
The income which we must attribute to this second store 
because of its superiority over the poorer we call " economic 
rent." In the first illustration of the two fields, the superior- 
ity in fertility gives rise to rent, while in the second, the 
superiority of location has the same effect. 

These two cases, though hypothetical, clearly illustrate 
the underlying principle back of the phenomenon of rent, 
wherever found. The reader can readily see how in countless 
cases these illustrations would have to be modified to meet 
actual conditions. The amount of economic rent often de- 
pends on a combination of both fertility and location, and 
not, as in our illustration, solely on one or the other. This 
is particularly true when one is thinking of land used for 
truck farming where value is determined not only by its fer- 
tility, but also by its nearness to the city market. 

According to his various needs, man puts land to a variety 
of uses. As far as possible he puts the land to that use for 
which it seems best adapted. The center of every city is 
inevitably turned over to the purposes of business; because 
centrally located, it is more useful to man in that capacity 
than in any other. Naturally he puts it to that purpose 
which yields the highest economic rent. Outside this dis- 
trict we find, roughly speaking, the circular belt of residence 



THE THEORY OF RENT 345 

districts, which, though they have not quite the high social 
value of the business districts, still play an important part 
in the use that man makes of land. 

Beyond the confines of the city, stretching in many direc- 
tions, it is not unusual to find a number of truck farms; 
while farther beyond lie lands devoted to general farming, 
and perhaps beyond that land given over to grazing. There 
may still be land lying beyond this which is least desirable 
for any of the uses to which man may put land, but which 
may serve to catch the overflow of population, or may be used 
by the less fortunate members of society who cannot fit into 
the industrial system, but who are willing to go out on this 
poor outlying land and work on it for a bare living. This 
last type of land has earned the name in Economics of 
"no-rent" land, which implies that a man working on it 
will merely get enough from his labor to allow himself his 
daily wage and to pay for the few simple tools and seed that 
he may need in cultivating it. Its fertility is so low, however, 
that when a definite return from the land is set aside to pay 
wages and the interest on the capital invested, there is nothing 
left to pay rent, hence the expression *' no-rent" land. 

Broadly speaking, that class of land which has the highest 
social value will yield the largest amount of rent, and of 
each class that land which is superior will yield the higher 
rents. Accordingly, all land used for business purposes 
yields a greater income than land used for residence pur- 
poses. This latter in turn yields more than land used 
for trucking, which in turn yields more than land used 
for farming, and again, farming land is more valuable than 
land used for grazing, which in its turn brings in a higher 
return than "no-rent" land. 

It is apparent to all, however, that though this general 
scheme of gradation of the size of rents holds good, never- 
theless there are many variations, and few or no two pieces 
of land in the same belt pay the same amount of economic 
rent. In order to make clear the general theory of rent, we 



346 TEXT-BOOK OF ECONOMICS 

speak of the poorest land of each belt or class as the marginal 
land, and as receiving a marginal rent. It is obvious that 
if we take this poorest land as our basis, better land in the 
same class must pay a higher rate due to its superiority. 
This additional rate is called the differential rent; so that 
in theory all land which is better, to however small a degree, 
than the poorest land pays a rent composed of these two 
elements, a sum equal to the amount paid for the poorest 
land of its class, i.e. marginal rent, and an additional sum 
proportionate to its superiority over that land, called dif- 
ferential rent. The two together equal the economic rent. 
To illustrate, one can imagine a piece of land just on the 
margin of the belt between general farming and trucking. 
It is the poorest land used for this purpose, and may yield 
a return of twenty-five dollars an acre, and half a mile nearer 
the city there may be a second farm which, because of its 
superiority, will have to pay an' additional sum of ten dollars, 
making its rent, in all, the marginal plus the differential, or 
thirty-five dollars. Still farther in toward the city we can 
conceive of the very best land used for this purpose lying 
adjacent to the suburban district. This farm, being near to 
the city markets, will have to pay an even greater differential 
rent, perhaps of fifteen dollars, making in all a total rent 
of forty dollars. Going then farther toward the city, we 
immediately pass into the next belt in our illustration, the 
residential. The poorest land used for this purpose gives 
us the new marginal rem for that belt. It is obvious that 
the amount for this poorest or marginal land must be a 
little higher than the highest land of the next lower or 
trucking belt. If this were not so, the land would be put 
to truck farming again, because it would yield by that 
method a larger return. As a result, we have this general 
principle running throughout all the belts, that the marginal 
land of the next higher belt is always of a little greater value 
than the marginal land of the next lower belt plus its greatest 
differential value. 



THE THEORY OF RENT 347 

We thus see that the term "rent" as used in Economics 
is quite different from either "real" rent or rent as used in 
ordinary language. Economic rent is the income which must 
be attributed to land because of its share in production. 
It may be reckoned in so many bushels of wheat, or in so 
many bales of cotton, or in so many dollars. The char- 
acteristic feature is that it depends on its degree of superiority 
over the marginal or poorest land of its kind. In further 
contrast to rent as used in everyday language, the phenome- 
non of economic rent exists, whether the land in question 
is worked by a tenant or by the owner. All land gives rise 
to economic rent, except of course "no-rent" land, whether 
it is rented land or not. 

On the other hand, by "real" rent is meant the amount 
of income actually paid by the user to the owner of the land. 
This amount is only an estimate of the economic rent,usually 
expressed in dollars and cents. It may be either greater 
or less than the economic rent. It is usually the latter. It 
is always paid for "land," and that alone, which is not the 
case with the term "rent" as used in everyday life where it 
includes the sum of money paid for the use of a house or 
factory as well as that paid for the ground on which they 
are built. In this respect the popular use of the term " rent " 
differs from both economic and real rent, as these are the 
returns for the use of a gift of nature, and not for the use of 
some product of man's effort, such as a factory, house, or 
store building. Money paid for the use of capital, whether 
it be in the form of a machine or factory building, is interest 
and will be discussed in a later chapter. 

So far we have applied the law of rent to only one kind 
of "land," namely, the fields. It is, however, applicable 
to other forms of "land," as mines, water power, etc. For 
example, marginal water power would be the poorest kind 
of water power used for a certain purpose, as the running 
of a sawmill. A large and stronger stream, capable of being 
used for the same purpose, would yield a greater return of 



348 TEXT-BOOK OF ECONOMICS 

sawed lumber. This additional income would be the 
differential rent. Were there a source of water power just 
strong enough that it would just pay for the machinery used 
in harnessing it and the labor needed in operating it, it would 
correspond to "no-rent" land and might well be called "no- 
rent" water power. Likewise, we can apply the same 
fundamental principle of economic rent to mines and other 
gifts of nature. 

The phenomenon of "real" rent is a great equalizer. 
If a man is on poor land, he pays little or no rent ; if on better, 
he has to compensate for his advantages by paying a higher 
rent; and if on still better land, a still higher rent. The 
problem of rent becomes of real significance when there 
is one distinct group of people who are the land users, and 
another group, the land owners, as is largely the case in the 
older countries of Europe, especially in Russia. As theoretic 
as the law of rent is, it is the basis of one of our economic 
programmes of reform, known as the Single Tax. Without 
an understanding of the principles underlying the theory of 
rent an intelligent discussion of Single Tax is impossible. 

TOPICS FOR CLASS DISCUSSION 

1. With whose name is the theory of rent most closely associated? 

2. To what school of economists did he belong, and what were their 
main doctrines? 

3. Give examples you have seen of a rise of rent; the cause. Of 
a fall of rent; the cause. 

4. What is meant by the "law of diminishing returns " when applied 
to land ? 

5. Do the governments of other countries own land? Would it 
have been better for the United States to retain the ownership of its 
land instead of giving it away ? 



CHAPTER XLVII 

THE THEORY OF INTEREST 

The subject of capital and its importance in modem 
industry has already been discussed in two previous chap- 
ters of the book. It now remains for us to inquire into the 
nature of its reward in the form of interest, much as in the 
preceding chapter we discussed the reward of land under 
the title of Rent. 

Interest may be defined as a reward or premium that is 
constantly offered by the business world to those members 
of society who will save and invest their money rather than 
spend it. If one invests his money in stocks or bonds, the 
business world pays him this premium directly in the form 
of dividends or interest, at a given rate ; if in a saving fund 
or a bank, then indirectly through the agency of the financial 
institution; but nevertheless it is the business world which 
really pays the premium or reward to those who turn their 
income into production goods. 

In studying the question of interest three questions naturally 
present themselves. First, why need there be any premium 
called interest to induce people to invest their income rather 
than spend it, or, in other words, to allow the industrial 
world to put their income into capital goods (tools, factories, 
and the like) rather than to put it themselves into consump- 
tion goods (clothing, food, houses, and the like)? Second, 
what determines the size of the premium, i.e. fixes the rate 
of interest? If the rate varies from time to time, what is 
the cause of the variation? Third, from what source is 
interest derived — i.e. does the phenomenon of interest mean 

349 



3SO TEXT-BOOK OF ECONOMICS 

that labor or land is being deprived of part of its share of 
the products of industry? Let us take up these problems 
in order mentioned. 

First, why is any premium in the form of interest necessary 
to induce people to save rather than spend their incomes? 
The answer lies in certain facts of human nature. Man 
constantly undervalues the future as compared with the 
present. A present pleasure is always valued more highly 
than the same pleasure promised to us a year or two years 
hence. A dollar in our possession now is prized more highly 
than a dollar promised to us a year hence. This is true for 
a number of reasons. First, there is the question of un- 
certainty. We may never get the dollar a year hence. Life 
itself is so uncertain that we may not be alive a year later 
to claim the dollar. Then, again, the borrower may be un- 
fortunate or dishonest, and not be able or willing to return 
the money at the agreed time. All these considerations 
will cause a lower value to be put on the dollar promised a 
year hence than put on the one already in possession. As 
the familiar adage expresses it, "A bird in the hand is worth 
two in the bush." 

A second reason for valuing the present more highly than 
the future lies in the fact that a present dollar can yield 
an immediate pleasure, while the future dollar cannot, and 
pleasure at hand always looks greater than pleasure at a 
distant date. The object of desire is right before us if the 
dollar is already in possession. On the other hand, it re- 
quires a great taxing of the imagination to picture the 
future pleasure in anything like so rosy a light as the one 
before the eyes. Man inevitably prizes present pleasures 
more highly than those of the future, if for no other reason 
than that they are present. It is because of these recognized 
facts in human psychology that a bonus, or premium, must 
be offered to make the future dollar look as attractive as the 
present one. 

We are now ready to take up our second question, 



THE THEORY OF INTEREST 351 

what determines the size of the premium or fixes the rate 
of interest? A present dollar may be valued more highly 
than a future dollar. Furthermore, in a choice between a 
dollar now or a dollar and three cents a year from now, the 
present dollar may still be chosen ; but on the other hand, in 
a choice between a dollar now and a dollar and six cents 
a year hence, the latter amount may determine the choice. 
In this latter case the six cents was the premium which had 
to be offered to induce the saving. This is a simple illustra- 
tion of interest at 6 per cent. So far we have considered 
the question of interest on an individual basis only. The 
same principle, however, is involved in determining the 
market rate of interest, for such a rate is really a composite 
of a number of individual rates. In each community there 
is a definite need for income to maintain the present or- 
ganization of industry. Through competition among bor- 
rowers a rate is finally reached which will induce enough 
money to be accumulated in the aggregate to meet all the 
needs of industry in the community. The rate needed to 
accomplish this may be 6 per cent. If it is, it does not mean 
that no one would save if the rate were only 5 per cent, but 
that not enough would save at this rate to meet all the in- 
dustrial needs of the community. Though some would 
probably value $1.05 more highly than the present dollar, 
still, as there may not be enough willing to save at that rate, 
the interest rate rises to 6 per cent. Of course, since this 
is the market rate, all will receive the same rewards for sav- 
ing, though their individual valuations of the present and 
future may have varied greatly. 

If, therefore, at any time the majority of the people value 
a present dollar more highly than $1.06 a year hence, then 
those in industry who desire to keep intact their supply 
of capital will have to raise the premium above six cents 
or go without the desired capital. At all times the premium 
must be high enough to cause a sufficient number of people 
to value the future more highly than they do the present. 



352 



TEXT-BOOK OF ECONOMICS 



Otherwise the capital of the country will not be kept up to 
the needs of industrial society. 

We may generalize this by saying that as- men naturally 
discount the future, a premium large enough to offset this 
discount must be offered. Whenever the current rate of 
interest exceeds the rate at which men discount the future, 
income will be saved and invested. The tendency will 
always be for the supply of capital goods to be kept at just 
that point at which the rate of interest and the rate of dis- 
count are equal. 

There still remains for discussion our third question, 
from what source is interest derived? An answer to this 
is most pertinent to a discussion of interest, because it is 
often contended that interest is exploitation, that it 
is a form of robbery, taking from labor what is justly its 
due and giving it to the capitalist. This view, while 
popular, is hardly scientific. Of the three factors in pro- 
duction, land, labor, and capital, we speak of land and labor 
as being primary factors, and capital as secondary. The 
reason for this division is evident. Were either labor or land 
absent, no production could be carried on, while without the 
third factor, capital, production is possible. But while 
production is possible without tools, primitive man rapidly 
learned their value, and even with him production was 
largely threefold. With the progress of civilization has gone 
the increasing use of tools, until to-day our capital no longer 
takes the form of a few crude hand tools, but embraces 
huge buildings, intricate machines, and wonderful power 
engines costing vast sums of money. 

Man has learned in the case of production that " the longest 
way round is the shortest way home," and so he finds it eco- 
nomic to spend months and thousands of dollars to make 
capital goods before he makes a single article of direct use to 
himself. He realizes that although the time between his first 
preparation for production and his ultimate consumption 
of goods may involve months, it pays in the long run, as by 



THE THEORY OF INTEREST 353 

this capitalistic method of production he will have more 
goods to consume and each at a lower "cost" per unit. 

A farmer using, practically speaking, no tools, might get 
ten bushels of wheat to the acre, but he knows that it is 
worth while to spend some of his time in preparing capital 
goods, and so he makes tools for effective cultivation, prepares 
fertilizers, probably drains a marsh, and builds fences, with 
the result that in place of the ten bushels per acre that he 
first got, he now secures thirty bushels. This extra twenty 
bushels provides the fund from which interest can be paid 
without exploiting either labor or land. In this statement 
no claim is made that labor is never exploited by capital, 
but that the phenomenon of interest does not necessarily 
imply exploitation. 

Before closing a discussion of interest there is one differ- 
ence which one should note between the problem of interest 
as it existed in earlier times and to-day. Primitive com- 
munities lived in a world of deficit, where there was a scarcity 
of consumption goods and still less of capital. Under such 
conditions people had to be rewarded for the sacrifice in- 
volved in turning their incomes into capital goods rather 
than into those consumption goods which they could enjoy 
immediately. The advanced societies of modern times have, 
however, left the age of deficit and entered upon the age of 
surplus, where there is more than plenty for all. Under 
this latter condition the problem is, how to preserve capital, 
not how to create it, how to keep people from consuming 
the capital that they already have, not how to get more of it. 
Where formerly interest was paid for the sacrifices involved 
in creating it, to-day there is no sacrifice involved in creat- 
ing capital. To-day interest is paid to preserve capital. 

In modern times capital is created not by getting people 
to sacrifice and save, but by getting them to increase 
their productive power. Whenever a new addition is made 
to the capital fund of the community, it comes through some 
gain in productive power. Often a man increases his effi- 

2A 



354 



TEXT-BOOK OF ECONOMICS 



ciency, and as a result gets an income greater than the other 
individuals in the group to which he has always belonged. 
His standard of living is largely fixed by his group, but his 
income, being above that of the group, gives riseto a surplus. 
He naturally disposes of this through investment. This 
increases the capital fund of the community. If, for example, 
his income has risen to $1,500 a year and his standard of 
living required only $1,200, then through investments he 
would yearly add to the capital fund of the community to 
the amount of $300. Similar investments on the part of 
^many individuals are the source of all modern capital. 

The more rapidly a man raises his standard of living, the 
less rapidly is capital likely to be created. Emphasizing 
the present, instead of the future, causes a variation in the 
rate of interest, since the rate of interest rises or falls as the 
present or future is respectively overvalued. Any raising of 
the standard of living emphasizes the present as opposed to 
the future. This is a marked tendency of modern times 
with its increasing emphasis on the value of a high standard 
of living. Men in an age of surplus live more and more 
in the present, and think less and less about the future. 
This would seem to indicate that the supply of capital for 
the future is in great danger of being impaired. This tend- 
ency is checked at all times, however, by a rising rate of 
interest, which automatically prevents the standard of living 
from rising so high that the supply of capital is not pre- 
served for the needs of industry. 

TOPICS FOR CLASS DISCUSSION 

1. If capital is needed in production, why is the question of justice 
raised when its use is paid for? 

2. Can law fix the rate of interest at any point desired? Why? 
Does it succeed in fixing a maximum rate? 

3. Why does the rate of interest vary at the same time in diflferent 
sections of the country? in different businesses? 

4. The savings of the American people are nearly a billion dollars 
a year. What and where are they? 



CHAPTER XLVIII 



THE THEORY OF PROFITS 



One of the greatest obstacles that students just entering 
the field of economic science have to encounter is the question 
of terminology. Economists are constantly putting new 
wine into old bottles by giving new meanings to old terms. 
We have seen that " land " is not land in common speech, 
nor "rent " rent. The term "profits " likewise has a techni- 
cal meaning in Economics. Ordinarily, when one speaks of 
profits, he refers to any gain secured in business, usually 
the difference between the buying and selling price of an 
article ; but in the science of Economics the term has a more 
definite and limited meaning than in popular language. 
Stated briefly, profits as used in this chapter refers only to 
the returns, or rewards, that go to a business man because of 
his superior ability in managing his business. Profits thus 
partakes both of the nature of wages and of rent. It is a 
return for a form of human effort known as organizing ability, 
and at the same time it resembles rent in that it is a dif- 
ferential depending on degree of superiority. 

There are many forms of labor, — common, skilled, manual, 
and mental; but these usually apply to labor performed for 
another. There is another kind of labor, however, which 
does not come within this class, in that it is labor rendered 
not for an employer but for oneself. It is the energy, or labor, 
expended in running a business, in " making things go." 
It requires a knowledge of how to combine labor and capital 
in such proportions that the maximum results are obtained. 
It demands abiUty in handUng men, either one's employees or 
one's customers. Steadiness and self-control, energy, good 

3SS 



356 TEXT-BOOK OF ECONOMICS 

judgment, a ready grasp of situations, and organizing ability, 
all are part of the role of the successful employer. His 
efforts, though seldom termed " labor," are a form of human 
effort, often of the most difficult sort. His reward is in the 
nature of wages ; but not being paid by a superior, and not 
fixed in amount or guaranteed, is termed " profits." 

As land is of unequal fertility and accordingly receives dif- 
ferent rents, so men in business for themselves of unequal 
ability as organizers similarly receive different rates of 
profits. Herein are profits like rent. They are a form of 
differential. In a previous chapter we divided land in four 
or five different belts or classes. The same can be done with 
a group of men which constitutes the entrepreneurs of the 
country. There is, first, that class of men who stand out 
from among their fellows as leaders and pioneers. They 
have a keen insight for great possibilities, are resolute, com- 
manding, and naturally inspire men with confidence. Their 
success is so phenomenal as to cause the less fortunate to 
feel that they were " born under a lucky star." 

In this second group of entrepreneurs are found men of 
high talent who can master a situation, are resolute and 
prompt, but yet who are not geniuses and who lack the 
broad vision and judicious daring of those in the first class. 

In the third class are found what might be called the 

rank and file of average business men. They do things on 

a small and conservative basis. They make a comfortable 

living in business. It is, however, only their frugality and 

' conservatism which prevent them from going to the wall. 

In our fourth and last class are found a multitude of men 
who are on the border line between employers and employees. 
They often oscillate between these two classes and seem to 
be in business for no particular reason other than that they 
wanted to try their hand at it. They are men of checkered 
careers, usually with the record of bankruptcy back of them. 
Averaging up their gains and losses over a lifetime,, one 
may justly call them the " no-profit " class of entrepreneurs. 



THE THEORY OF PROFITS 357 

As in the case of rent, the poorest or no-rent land was 
used as a basis for measuring all rent, so in the case of profits 
this poorest or no-profit class is used as a basis for measuring 
all profits. This can best be concretely illustrated by taking 
entrepreneurs in one industry rather than from all kinds. 

Imagine a man of the no-profit class in the cotton-manu- 
facturing business. For the year, after meeting all his ex- 
penses, he finds that he just squares himself. He, of course, 
sells his cottons at the regular market rate. A man in the 
class above him pays the same rate of wages and rate of 
interest, buys his cotton yarn at the same price, and sells 
his product at, of course, the fixed market rates, yet because 
of his superior ability as an organizer finds that at the end 
of the year his profits net him $2,000. We might continue 
the illustration right on through the other classes, each having 
to pay the same rate of wages and interest and practically 
the same for raw products, but each in turn receiving a greater 
profit, proportionate to his superior organizing ability. 

Having seen that profits are by nature a differential, there 
are two other characteristics that deserve our attention. 
First, profits are a form of wages because they are a return 
for human effort directed toward production, but unlike 
ordinary or contract wages, they are not fixed in advance, 
and there is no guarantee that they will be paid. The man 
who works for profits must assume all risks. Second, 
profits of all the sources of income fluctuate the most violently. 
Interest is relatively staple. It usually varies within narrow 
limits. Wages conform to the market rate and move up- 
ward or downward but slowly throughout the decades. 
Profits, on the other hand, may be wiped out in a season and 
loss encountered in their place. If prices fall, the entre- 
preneur is first to feel the effect in diminished profits. If 
prices fall rapidly, there is little hope of distributing the losses, 
as wages are relatively fixed by the unions and a certain 
standard of living, and the rate of interest on borrowed capital 
is fixed by general market conditions. A sudden fall in 



358 TEXT-BOOK OF ECONOMICS 

the price of a particular finished product usually comes 
entirely out of the entrepreneur's profit. However, a sudden 
scarcity of the product in question with its resulting rise 
in price directly contributes to the fund of profits of the 
entrepreneur, and only slowly and indirectly affects either 
wages or interest. The entrepreneur has aptly been com- 
pared to a spring or buffer which takes up and distributes 
the strain of industry. He is the first to feel the influence 
of changing conditions. If prices fall, the first loss falls on 
him. If prices rise, he is the first to receive the gains re- 
sulting from a returning tide of prosperity. He is the in- 
termediary in industry, a kind of economic buffer. 

TOPICS FOR CLASS DISCUSSION 

1. What are the chief elements in business success? 

2. Do unsuccessful employers pay less wages than those who make 
large profits? 

3. What is the effect of competition on profits? 

4. What devices do entrepreneurs sometimes employ to escape com- 
petition ? 



CHAPTER XLIX 

THE THEORY OF WAGES 

Having already discussed the respective theories under- 
lying the economic phenomena of rent, interest, and profits, 
we are now prepared to turn our attention to the theory of 
wages. We have left this to the last in our discussion of 
theories, not that wages is a residual claimant getting only 
what the other factors leave, nor that it is the least important 
sharer in the distribution of wealth, but merely because the 
theory of wages, like a keystone, completes the arch of eco- 
nomic theory, uniting the various parts into an harmonious 
whole. 

It is a commonplace to say that without labor no wealth 
can be created. It is one of the most essential of the agents 
in production. As defined in Economics, labor is a broad 
term, including all human effort of body or mind put forth 
in the creation of utilities. The services of a railroad presi- 
dent receiving $50,000 a year, and those of a day laborer 
receiving but $1.25 per day, come under the definition of 
labor as here used. They both are forms of human effort 
put forth in production. The purpose of the present chapter 
is to inquire into the law which regulates the size of the share 
which goes to labor in the distribution of wealth, just as in 
the preceding chapters we inquired into the laws regulating 
the rewards which went to land as rent, or to capital as 
interest. 

In any complete theory of wages it is essential to note 
carefully two distinct phenomena. First, what explains the 
phenomena of some forms of labor receiving as wages $1.25 a 

359 



360 TEXT-BOOK OF ECONOMICS 

day and other forms of labor receiving many thousand dol- 
lars a year ? Second, what explains a general rise or fall of all 
wages? Though inequalities in wages may still exist, what 
can explain the fact that labor may be getting a larger or 
smaller share of the total wealth produced at one time than 
at another. These two problems will engage our attention 
in the order named. 

First, why are wages to-day unequal? The workers of 
the world may roughly be divided into certain fairly well- 
defined groups. There is first the great mass of common 
labor; then the skilled labor group, which includes the 
mechanics and the clerks. In the next group are the rank 
and file of the professional and business men. Lastly, 
there is that smaller group of men who stand at the head of 
the heap in the industrial and professional world. They are 
the men with national reputation either in the professions 
or as captains of industry. These four groups are arranged 
according to the degree of ability evidenced. What, then, 
fixes the rate of wages which go to these more or less non- 
competing groups of workers? Is it solely a question of 
relative productiveness that allows the members of the high- 
est group $50,000 a year and to those of the lowest group 
$1.25 a day? Is it because the man getting $1.25 a day 
creates that amount of wealth, no more and no less, that his 
wage is fixed at that point ? Is it because one creates by his 
services $50,000 worth of wealth a year that his salary is 
fixed at that point? Or ia there a factor involved which we 
have overlooked, the presence of which means that there is 
no absolute causal relation between a man's productive 
power and his wages ? There is. Such a factor is monopoly. 

Each laborer above the poorest of the lowest group enjoys 
in a measure some monopoly power by means of which he 
maintains his rate of wages. His monopoly power is similar 
to that of all monopolists. Any one who fixes the price of 
his commodity with his eye on the needs of the consumer 
rather than on the actual expense involved in making the 



THE THEORY OF WAGES 361 

said commodity is a monopolist. Few indeed, from the 
corner grocer to the coal baron, are not monopolists to a 
greater or less degree. The phenomenon of monopoly is a 
natural one. In exercising monopoly power labor is no 
exception. The railroad president charges for his services 
not what it ''costs" him but what he thinks he can get be- 
cause of the needs of the community for his particular kind of 
services. Each of the four classes of labor that we have 
mentioned charges for its services what "the traffic will 
bear" regardless of the "costs" involved. Each one who 
strives to get out of a lower group of labor into a higher, 
does so to increase his monopoly power. The smaller 
the numbers in the group into which he enters, the greater 
his monopoly power, and therefore the greater the wages 
which he can command. We praise the boy who goes 
through high school or college. His motive is to get a 
greater and greater monopoly power by entering into occupa- 
tions where there is little competition. The man who leaves 
the crowded class of unskilled labor and joins the smaller 
group of the skilled thereby increases his monopoly power 
and as a result can command higher wages. 

Thus, in a general way, the difference in the wages of these 
various non-competing groups depends on the respective 
monopoly power of the group in question. The monopoly 
power of these groups is never hard and fast. It depends 
on the relative supply and demand for the kind of labor of 
the said group. 

We have an excellent illustration of how the law of supply 
and demand fixes the rate of wages generally when we con- 
trast wages in America with those in Europe. America is 
a country calling for workmen. Europe is a country of 
workmen calling for work, though this is becoming less and 
less true as we attract to our shores their surplus population. 
In America wages are relatively high as compared with 
Europe. Wherever the number of economic opportunities 
(demand) exceeds the number of laborers (supply), there 



362 TEXT-BOOK OF ECONOMICS 

wages will be relatively high. If the relation between the 
number of opportunities and workmen is reversed, then wages 
will be relatively low. In the first situation, as illustrated by 
America, labor has greater monopoly power, and hence wages 
as a whole are higher. 

What is true about the relative supply and demand of the 
labor force giving one country higher wages than another, is 
equally true when we contrast not country with country, 
but group with group, within the same country. The wage 
of the day labor group is fixed by the degree of monopoly 
power which it possesses. This of course depends on the 
relation of the supply of common labor to the demand for it. 
The wage of the skilled group in like manner is fixed by the 
extent of its monopoly power. This is true of all the groups 
into which labor can be divided. In stating thus broadly 
that wages depend on the degree of the monopoly power of 
the class in question we do not mean to ignore certain other 
factors which have an influence in fixing wages, such as a 
general rising standard of living and the increasing socializa- 
tion of labor. These are merely modifying forces of which 
we shall speak presently. They do not vitiate the working 
hypothesis that we have outlined thus far. 

We are now ready to take a step forward in the general 
theory of wages. Let us assume that we have a number 
of groups of workers. Those in group A are in an occupation 
in which they can earn $1.50 per day; those in group B get 
$2.00; those in group C, $2.50 a day, and so on up the scale. 
What prevents a violent fluctuation in the respective wages 
of these various groups? If the wages in group B begin to 
fall toward the $1.75 mark, what will check this tendency 
and restore the old rate? Stated broadly, wages are fixed 
by the options which the strongest and most progressive in 
each group possesses. Any fall in the rate of wages in one 
industry will cause some of the best workmen to leave that 
industry and enter another, rather than suffer a reduction in 
wages. The number of workmen in the old industry is 



THE THEORY OF WAGES 363 

reduced, and as a result the old rate of wages is restored by a 
readjustment of supply and demand. 

This movement of the strong from industry to industry, from 
$2.00 to a $2.50 standard, prevents violent reductions in wages 
of any of the groups. As society advances, these options of the 
strong in each group grow more varied and effective. Even 
though the individual may not exercise this option in all cases, 
he endeavors so to educate his children that they no longer 
replace their father in the old group, but enter a group higher 
up, where competition is less keen, the monopoly element 
greater, and wages higher. The son of the East Side vender 
of New York becomes not a street vender but a merchant 
tailor or a real-estate broker. Thus the pressure of numbers 
in the old group is reduced and wages are at least maintained 
at their old level. In the New York East Side situation, the 
operation of this law is obscured by the great flood of immi- 
gration to that city. With a sufficient number entering the 
group above there is a tendency for wages to fall in that group, 
but again the more progressive of the group have the same 
option of leaving their group as those in the group below ; and 
as a matter of fact, we see the same process taking place. 
Thus one sees that "the monopoly power of each group, 
gained through the options of its strongest members, is the 
sole determinant of wages and is the one thing for which 
laborers should seek." 

We are now ready to take up the second problem which 
we outlined in the opening pages of the chapter. Is wages 
a gaining or losing share in distribution ? If it is either, what 
is the cause ? If labor is getting a greater proportional share 
of the products of industry to-day than ever before what is 
the force back of the change? A certain school of Econ- 
omists contend that labor gets in distribution a share 
proportionate to the part that it plays in production. Ac- 
cording to their position, it would be easy to explain why 
labor is getting a relatively larger or smaller share in distri- 
bution. It must be either increasingly or decreasingly 



364 TEXT-BOOK OF ECONOMICS 

productive, or its share would not change. If, however, we 
assume, as we have done, that there is no direct casual relation 
between labor's productiveness and its reward, but that its 
remuneration depends largely on what it can command 
through the relative strength of its monopoly power, then we 
must look elsewhere to explain the phenomenon of wages 
rising or falling, over a series of decades. 

A natural place to start in seeking such an explanation is 
to study the various elements that enter into the price of 
commodities. The price of a commodity gives us the size 
of the fund to be distributed, and the price-making elements 
give us a list of the various claimants which must be satisfied 
out of this fund. It will be well to first study in miniature, 
so to speak, how distribution works with one commodity and 
then enlarge our illustration to include all commodities, the 
combined price of which will be the fund out of which all the 
various claimants in distribution, as rent, interest, and the 
like, must be rewarded. Assume that one pays fifty cents 
for a jackknife. The knife is the result of labor on raw 
materials secured directly or indirectly from land and fash- 
ioned into a thing of usefulness by the aid of tools (capital). 
As a finished product ready for the consumer it brings fifty 
cents in the market. What fixed the price of this article at 
a half dollar ? To answer this we must first decide what are 
the price-making elements involved. Out of that fifty cents, 
something must be set aside to pay the interest involved in 
the manufacture of the knife. Another portion will go to 
cover the risks involved from the time the raw material was 
first selected until in its finished form it was passed over the 
counter to the consumer. Another part will go to pay for 
rent. Another part will take the form of profits. Still 
another part of the half dollar must cover the labor cost 
involved. Perhaps forty-five cents will settle the claims of 
these five elements. Can we assume from this that the 
dealer will fix the price at forty-five cents ? Not so. If by 
charging fifty cents the dealer can dispose of nearly as many 



THE THEORY OF WAGES 



365 



knives as though he were charging forty-five, then he will 
use his monopoly power and charge a half dollar. Monopoly 
power is then our sixth and last element in price, and as such 
it will claim a share of the fifty cents as much as wages or 
profits claim a part. In brief, there are six elements that go 
to make prices what they are. Each of these elements is a 
sharer in distribution, whether it is a factor in production or 
not. Graphically we might represent this relationship by 
the following figure. The outside dimensions stand for the 
price of the jackknife. 



1 

H 
CO 






en 




>^ 

en 


I— I 

H 
W 
M 
en 


H 



From this simple illustration one can readily see that each 
share in distribution grows or falls off as it becomes a larger 
or smaller element in the price of the jackknife. In our 
diagram, if rent increased from twelve to fifteen cents, the 
sum of the five remaining shares must have fallen off in order 
to maintain a total of fifty cents for all the various claimants. 

The illustration of the jackknife is but typical of the 
processes involved in the distribution of all wealth. In 
place of the knife, one must think of all commodities ready 
for consumption. In place of the price of fifty cents, one 
must think of countless millions of dollars, the total price 
of commodities. The price-making elements which will 
claim a share in distribution will, however, remain the same. 
They will still be the six claimants — rent, interest, risks, 



366 TEXT-BOOK OF ECONOMICS 

profits, monopoly, and wages. Each of these shares will 
grow or fall off as it becomes a larger or smaller element in 
the price of commodities. 

We are now prepared to ask what forces there are at 
work which, as time goes on, can cause some of these shares 
to become a larger or smaller element in price. If there 
are forces causing rent to become a smaller element in the 
price of commodities, then the rate of rent is falling. What 
rent loses as its share will go to some other claimant, for 
there can be no general rise or fall of all prices. If wages 
is becoming a larger element in the price of commodities, 
then the rate of wages is rising. What labor gains as its 
share of the fund, represented by the total price of com- 
modities, must decrease the share of some other claimants. 
What one gains the other must lose, just as in our jack- 
knife illustration, when rent increased from twelve to fifteen 
cents, some other share was cut down to maintain a total of 
fifty cents, the price of the knife. 

What forces are there in civilization that can change the 
relative size of the shares which go respectively to the six 
claimants in distribution. There are two sets of causes 
which might have this effect : first, the relative rate of in- 
crease of the products of the factors in production ; second, 
the various ways in which the power of substitution acts on 
the six elements in price. 

We will now proceed to discuss at greater length these 
two possible causes of changes in the rates of interest, wages, 
and rent. As to the first explanation, let us see how the 
relative rate of increase of the three factors, land, capital, 
and labor, can affect the rate of rent, interest, and wages. 
To understand clearly the effect of having two or three 
factors increasing at different rates, we will start with the 
simplest illustration possible. 

Assume that in a certain community two bushels of wheat 
exchange for one yard of cloth. Through greater science and 
care in wheat raising, through draining a marsh here and 



THE THEORY OF WAGES 367 

using fertilizer there, the amount of wheat raised in the 
community is greatly increased. As a result, the ratio of 
exchange between wheat and cloth is changed, and now the 
farmer must give three bushels of wheat for one yard of 
cloth. The cloth manufacturer works no harder than 
formerly in making his cloth, but now for each yard of 
cloth that he weaves he gets three bushels of wheat in ex- 
change where formerly he got but two. 

Suppose that after a while the makers of cloth improve 
their method of manufacture, introducing new and im- 
proved machinery and working out the economies of the 
division of labor to a nicer degree than formerly. What 
will be the result? Increased efficiency will mean that an 
increased amount of cloth will be turned out for the market. 
Again there will be a change in the ratio of exchange of 
wheat and cloth. For one yard of cloth the weaver can 
no longer get three bushels of wheat, but only an even bushel. 
In this illustration, involving the two factors of cloth and 
wheat, that factor which for the time being was increasing 
its output the less rapidly received all the benefits arising 
from the increased output of the other factor. When there 
was no improvement in manufacturing cloth, it reaped the 
benefit resulting from improvements in agriculture; and 
when there was an improvement in the manufacture of 
cloth, all the benefit accrued to the farmer because he then 
got more cloth in exchange for each bushel of his wheat. 

The phenomenon of the ratio of exchange varying with 
the relative increase in the size of the exchanging factors is 
based on the same principle as that involved in the quantity 
theory of money, which gives us low prices when the quantity 
of money is scarce and high prices when the amount of 
money as compared with commodities is abundant. This 
gives us an important law in Economics, which has been 
crystallized by Professor Patten as follows : — 

"Of the factors necessary for production, that factor 
which tends to increase at the slowest rate will reduce the 



368 TEXT-BOOK OF ECONOMICS 

shares of the other factors to their lowest limits, will have 
the benefits of all improvements, and must bear all perma- 
nent burdens." 

That is to say, the same principle is involved when two 
factors increase at different rates, whether the factors be 
capital and labor, or wheat and cloth. If, for example, 
during twenty-five years the amount of capital of a country 
triples itself while its population only doubles, the result 
on the rate of interest is evident. Other things remaining 
equal, interest will fall while wages rise. The steady fall 
of the rate of interest as a country grows older and wealthier 
is one of the commonplaces of economic history. One 
might have contrasted land and capital. If through scien- 
tific farming the products of the land increase more 
rapidly than manufactured goods, the product of capital, 
then interest must rise and rent fall, provided all else 
remains the same. 

If we observe the wonderful changes that have been, and 
still are, taking place in this country, we can come to but 
one conclusion as to which is increasing the least slowly of 
the factors of land, labor and capital. Our capital fund is 
steadily gaining on the growth in population. We are 
wealthier as a nation than ever. There is more capital per 
person in the country. The interest rate has been steadily 
falling. 

With the incoming of scientific agriculture, our food 
possibilities have gone ahead by leaps and bounds. By 
reclamation and irrigation we have doubled the land area 
that can be devoted to agriculture. This has all happened 
within a generation. The use of new foods and the greater 
yield of old, through scientific fertilization, mean that our 
growth of food production has far outstripped the growth of 
our labor force. The conclusion is apparent from an ex- 
amination of the development of the last fifty years that 
labor is the least slowly increasing factor. Therefore, 
labor's share of wealth in distribution will tend to grow 



THE THEORY OF WAGES 369 

larger, while the shares of land and capital will tend cor- 
respondingly to decrease. Thus far we have concluded the 
discussion of the first reason given as an explanation of the 
phenomenon of certain claimants in distribution, as rent 
and interest, becoming relatively smaller elements in price, 
and of other factors, as wages, becoming relatively larger 
elements. 

We are now prepared to discuss the second reason assigned 
as an explanation of this same phenomenon of the changing 
size of the shares of the price elements. We have already 
briefly stated the cause as due to the different ways in which 
the power of substitution affects the six claimants in distri- 
bution. Broadly defined, the power of substitution is the 
power which the consumer exercises over the price of com- 
modities by his ability to substitute another commodity at 
a cheaper price. The price of electricity as an illuminant 
can never soar to the extreme heights that might be possible 
could people not substitute gas or oil for it. If the power 
of substitution is active, prices are cut down. If slightly 
active or absent, prices go up. 

Among the various claimants for a share in distribution, 
where is the power of substitution most active and where 
the least so? Can we divide these various claimants into 
two groups, the one containing those claimants in which 
substitution is most active, and the other, those in which it 
is least active? If we can, then we have the basis for an 
assertion that certain shares in distribution are gaining 
while the other shares are losing. The returns to that group 
in, which the power of substitution is most active will be 
forced down, while the other group will gain all that the 
first group loses. Let us consider one after another how 
substitution affects each of the six claimants, rent, interest, 
risks, profits, monopoly, and labor. First, with land the 
power of substitution is ever active. New land is constantly 
becoming available as a substitute for old. The rent of 
the Dakota wheat lands has its upper limit of rent fixed 



370 



TEXT-BOOK OF ECONOMICS 



by the presence of other wheat lands that can be substituted 
for it, such as those of Canada, Russia, or Argentina. 

Second, the power of substitution is an active force lower- 
ing the rate of interest. New and better forms of capital 
goods are constantly being put on the market. New ma- 
chines are substituted for old, with a resulting fall in the 
general rate of interest. 

While the third claimant, risk, can hardly be classed as 
subject to the power of substitution, there is no doubt that 
risk is becoming a smaller and smaller element in price. 
As society advances, business conditions become more steady. 
Risks, through the application of the principle of insurance, 
are being reduced to a minimum. Civilization means an 
increasing control of the environment, which in turn means 
less risks and greater stability. This is best emphasized in 
connection with the increasing certainty and steadiness of 
the modern food supply as contrasted with that of a hun- 
dred years ago. 

Profits, as has been explained before, is a differential 
gain which is constantly being lost. A man puts in a new 
system of manufacturing. He reaps for the time being an 
extra reward called profits. This differential advantage he 
soon loses, as there are constantly a host of imitators follow- 
ing in the wake of his success. Through the power of his 
competitors to substitute new and better methods for the 
old ones, his profits are constantly cut down. 

We now come to the two remaining claimants, monopoly 
and wages. By definition, monopoly implies the absence 
of the power of substitution. Introduce the power of sub- 
stitution and you destroy monopoly. In regard to the other 
claimant, wages, the power of substitution on the part of 
the employer to substitute cheaper and cheaper labor for 
the better paid is becoming less and less possible. The 
greater the mobility of labor, the less the power of substitu- 
tion on the part of the employer. With a glutted labor 
market, the entrepreneur could force wages down by sub- 



THE THEORY OF WAGES 37 1 

stituting the man who would work for less for the man 
asking his old wage. But increasing mobility means a 
readjustment of the supply and demand for labor. As a 
result, the employer is largely deprived of his old time power 
of substitution and therefore of his control over wages. 

We come to the conclusion, therefore, that against mo- 
nopoly and wages, two of the six claimants in distribution, 
the power of substitution has little or no effect. This en- 
ables us to divide the price-making elements into two classes. 
Rent, interest, risks, profits, stand in that group which have 
their shares cut down because the power of substitution is 
active against them. Monopoly and wages stand in the 
other group, where the power of substitution is inactive. 
This second group gains all that the first group loses. Price 
remains the same. Therefore, if one element makes a 
smaller part of it, another must make a correspondingly 
larger part. 

Though monopoly and wages stand in the same class as 
increasing factors, there is an important distinction between 
them. Monopoly is a residual claimant. Wages is not. 
Monopoly power has definite limits. It can only claim that 
part of the social surplus that is not taken by interest, profits, 
rent, risks, and wages. The shares of these factors are 
fixed by definite economic laws of their own. What is left 
goes to the monopolist. There is no active force raising 
or lowering monopoly's share. Wages, however, has such 
a force back of it. Like monopoly, it is gaining because it 
is in that class against which the power of substitution is 
least active ; but unlike monopoly, it can exercise the power 
of substitution in its own defense, with the result that it is 
gaining along with monopoly, but even more rapidly. 

Thus far in speaking of the power of substitution, it has 
always been in reference to something inanimate, as land 
or capital goods, against which it was brought to bear. As 
we have just stated, in connection with labor, the power of 
substitution has a different relation. Instead of being used 



372 TEXT-BOOK OF ECONOMICS 

against labor, to break its monopoly power, it is a lever 
by which labor can effectively aid in increasing its share in 
distribution. As applied to labor in this connection, the 
power of substitution is the ability of labor to substitute 
better opportunities of work and wages for poorer ones. 
The Italian sailing for America, the Russian Jew of the 
East Side leaving the sweat shop and starting a small store 
of his own, are each exercising his power of substitution. 
Each is increasing his wage. As we go upward among the 
more efficient groups of workers, the opportunity to exercise 
the power of substitution increases. Because of the exis- 
tence of a range of options, it is impossible, as we have already 
seen, to have any sudden reduction in the rate of wages of 
any one group. Enough of the stronger members stand 
ever ready to exercise their option, and the downward trend 
of wages is checked. 

The power of substitution is only a tool, a lever as it 
were, by which wages are raised. What then is the force 
lying back of this tool, making it an effective agent in the 
advancement of wages? What prompts the laborer to go 
to great expense and trouble to exercise his power of choice ? 
What force sends the immigrant across 3000 miles of water, 
or the man in the East nearly as many miles west or south- 
west? The answer is, a dynamic standard of living. It is 
a matter of common knowledge that man's wants increase 
faster than his means of satisfying them. This psycho- 
logic fact leads one to endeavor to increase his income to 
meet this ever increasing growth of wants. The increase 
In the standard of living and the comforts of life are every- 
where apparent. The American standard of living includes 
things denied to kings in ages past. It is an upward move- 
ment felt in all walks of life. But a dynamic standard of 
life is not all that is needed. The standard must be main- 
tained when once attained. This is made possible by the 
increasing socialization of labor, whereby individuals of a 
group refuse to act against the interests of the whole. This 



THE THEORY OF WAGES 373 

socializing process, which is quite characteristic of modern 
industry, is well represented in the growth of unions, asso- 
ciations among professional men, retail dealers' associations, 
and the like. 

The union, for example, has a direct relation on a stand- 
ard of life. It gives to the whole group a common standard, 
and though the union may not be the cause of an increas- 
ing standard of living, it is a means by which a standard 
after it has once been reached can be maintained. The 
union principle is an efficient brake to be applied to pre- 
vent any cut in wages which would lower the standard of 
living for the many, after it has once been made possible by 
an increased wage. It is analogous to a brake on a cog 
wheel which makes secure the progress already made, while 
a stop is temporarily made before fresh progress is attempted. 

Having already noted the usefulness of the power of sub- 
stitution in general as a means of forcing down the shares 
of interest, rent, and profits, to the gain of monopoly and 
wages, and particularly as a lever whereby labor increases 
its money income, while at the same time it forces down 
the price of the consumption goods which that income 
buys, one is led to ask, can we expect to see this power of 
substitution grown stronger as time goes on? There are 
four tendencies in modern life which answer this question in 
the affirmative. 

First, the mobility of labor is rapidly increasing, due to 
the steady cheapening of transportation, whereby at low 
rates labor can now move from one labor market to an- 
other. This has not only affected the mobility of labor 
within a country, but it has even had an international in- 
fluence. Every year two or three hundred thousand Italians 
leave Italy for their Argentina farms, which they can work 
in conjunction with their Italian holdings, as the summers 
in the two places fall in different parts of the year. As 
time goes on and mobility increases, differences in the rate 
of wages in the East, West, and South of this country must 



374 TEXT-BOOK OF ECONOMICS 

tend to disappear. The greater the mobility, the greater 
the field on which one can exercise the power of substitution. 

Second, there is the increase in the efficiency of the la- 
borer, whereby he is enabled to extend the range of oppor- 
tunities open to him. Industrial education, whose chief 
end is increase in efficiency, is now receiving serious atten- 
tion in this country. In the future, we are likely to see the 
movement grow, as it already has in Germany. The greater 
one's efficiency, the greater one's power of substitution. We 
are rapidly adopting all those methods of education whose 
end is efficiency. 

Third, the increase in leisure. The movement in favor 
of the eight-hour day, the Saturday half-holiday, and the 
summer vacation means greater opportunities to exercise 
one's power of substitution. A week's vacation or a Satur- 
day afternoon off may be the occasion for gaining a knowl- 
edge of new and better economic opportunities. Certain it 
is, one can take a more intelligent interest in what is going 
on around him after an eight-hour day than after coming 
home at the close of a ten- or eleven-hour day too tired to 
do or think of anything else than of sleep and of repeating 
the process the next day. The more one's leisure, the greater 
the desire to increase one's income, and also the greater the 
opportunity for exercising the power of substitution to 
attain this end. 

Fourth, an increased variety in consumption. This is 
evident to-day in the new kinds of food, clothing, and amuse- 
ments. Such an increase gives labor a wider range in 
which to use its power of substitution, and this means more 
efficient use of its purchasing power. These four tendencies 
are all on the increase. As time passes, it follows that the 
power of substitution will become a greater and greater 
force in increasing the share in distribution that goes to 
labor. We are now prepared to restate the complete theory 
of wages. Having dwelt in detail on many of the smaller 
points necessary to a comprehensive understanding of the 



THE THEORY OF WAGES 375 

subject, the whole theory may now be given in outHne. To 
recapitulate, in discussing a theory of wages, two phenomena 
must be explained. First, what causes the vast differences 
in rates of pay which to-day may vary from $1.25 a day to 
$50,000 a year. We saw that the highest wages are paid 
to those who had the greatest monopoly; that wages are 
kept in a kind of status quo in the various groups because 
any violent reduction in wages in one group forces some 
of the more progressive ones or their children to leave the 
group, thereby removing the pressure of the oversupply, 
which was forcing the wages down. 

The second phenomenon to be explained, referred to the 
rising or falling of the general rate of wages over a series 
of decades. It was pointed out that the claimants in dis- 
tribution are the six elements that enter into price ; namely, 
rent, interest, profits, risks, monopoly, and wages; that 
price is a fixed amount ; but that the rewards of the different 
claimants vary because some get a larger, while others get 
a smaller, share from time to time. It was pointed out that, 
according to the law of distribution outlined some years 
ago by Professor Patten, the factor in production which in- 
creases least slowly gains at the expense of the more rapidly 
increasing factors, as when capital accumulating faster than 
population, interest falls and wages rise. The conclusion 
was inductively reached that labor, as a factor, increases 
less rapidly than any other. This means that labor is 
gaining at the expense of rent or interest. This tendency 
of wages to increase was seen to be further aided by the 
action of the power of substitution, which actively affected 
four of the claimants in distribution, and two of them but 
slightly. This gave us the basis for dividing the six claim- 
ants into two classes, — those in which the power of sub- 
stitution is more active, and those in which it is less so. In 
the first group were rent, interest, profits, and risks, and in 
the second, monopoly and wages. It was seen that the 
group against which the power of substitution is active is 



370 



TEXT-BOOK OF ECONOMICS 



constantly having its share cut down while the other group 
gains all that the first group loses. It was further seen 
that of these two increasing claimants of the second class, 
wages is gaining more rapidly because it can exercise the 
power of substitution in its own behalf, while monopoly is 
only a residual claimant. These changes may be graphic- 
ally presented by the following diagrams : — 



1800 



1850 



1900 



Rent, Interest, 
Risk, and Profits 



Monopoly 



Wages 



Rent, Interest, 
Risk, and Profits 



Monopoly 



Wages 



Rent, Interest, 
Risk, and Profits 



Monopoly 



Wages 



Let the first figure represent the way that returns of pro- 
duction were distributed in 1800, the second will show the 
change by 1850, and the third by 1900. In each of these 
figures there is an increase of the size of the price fund, 
because man's productivity is increasing. In each of these 
figures the amount that goes to the various factors, as rent, 
profits, etc., has actually increased. The point to be noted 
is, that in the second and third figures a proportionately 
larger share is represented as going to wages and monopoly, 



THE THEORY OF WAGES 



377 



and that of these two factors a larger proportionate share 
of the increase goes to wages than to monopoly. Thus as 
represented in these diagrams, the rate of rent may in reality 
be rising while relatively it is a smaller element in price than 
ever before. These time changes in distribution may be 
graphically represented by the following diagram : — 



1800 



1900 



Risk 



Monopoly 



Profits 



Rent 



Interest 



Wages 



As will be noted from the last figure, both wages and mo- 
nopoly have a larger share of the total in 1900 than they 
had in 1800, while rent, interest, profits, and risks have a 
correspondingly smaller share. 

Finally, it was noted that there are certain marked ten- 
dencies in modern civilization for the power of substitution 
to become a more and more powerful lever by means of 
which wages can be forced up as time goes on. Chief 
among these were an increasing mobility on the part of 
labor, a shorter working day, affording more leisure and 
hence opportunity to use the power of substitution, an in- 
creasing efficiency on the part of labor, and greater variety 
in consumption. All of these are tending to place labor in a 



378 TEXT-BOOK OF ECONOMICS 

better and better position as civilization advances, and to 
give it a larger share in the distribution of wealth. 

TOPICS FOR CLASS DISCUSSION 

1. What was the wage fund theory? 

2. What the "Iron Law of Wages"? 

3. Who was Malthus? What did he teach? 

4. What does the Productivity theory maintain as to the question 
of wages? 

5. What concern have the rich in the abundance of labor? 

6. What is meant by the "sweating system"? 

7. What is the effect of free common schools on the comparative 
wages of skilled and of unskilled laborers? 



BOOK IX 

CHAPTER L 

COLLECTIVE BARGAINING AND THE OPEN SHOP 

I. Collective Bargaining 

A COLLECTIVE bargain is an agreement made by the repre- 
sentative of a group in their name. As the term is currently 
used, the group of persons interested is a group of laborers. 
The delegates whom they elect bargain in their name with 
the employer concerning wages, hours, working conditions, 
and other questions of employment which come up between 
employer and employee. 

Collective bargaining is an accompaniment of the wage 
system. Under the feudal system the lord or baron was 
responsible for taking care of those dependent upon him. 
Under the wage system each man is responsible for taking 
care of himself. As a result of this condition of affairs, the 
competition among the individual wage workers has be- 
come very great, particularly since the introduction of the 
factory system. If a position was open, the man who, other 
things being equal, was willing to work for the lowest wage, 
secured the position, while the man who was unwilling to 
work except at a good wage was unable to secure employ- 
ment. Women and children were also brought in to take 
the places of men, and assisted by machinery they, in many 
cases, did the work which was formerly done by men and 
were paid at a lower wage. The employers used their ad- 
vantage to the utmost and forced down wages. Gradually 
there developed in the minds of the wage workers a feeling 
that they must stand together if they were to secure their 

379 



380 TEXT-BOOK OF ECONOMICS 

rights. The collective bargain was therefore a means of 
self-protection adopted by the employees to secure conces- 
sions from the employers of labor. 

The American colonies made a collective bargain with 
England in the treaty which followed the Revolution. When 
the Constitution was formed, delegates were appointed from 
the various colonies who made a collective bargain in the 
name of their constituents. The stockholders in a modern 
corporation delegate to the officers of the corporation a 
right to bargain in their name. The principle of collective 
bargaining underlies all the collective or social movements 
in history. So long as men are living together in organized 
society they must delegate authority. Only in that way 
can the work be done. The delegation of authority to a 
few is the foundation of all representative government. 

The average worker, as has been mentioned, is at a great 
disadvantage as a bargainer. An employee of the New York 
Central Railroad could not walk into the office of the General 
Manager and request in his own name an increase in wages 
or a decrease in the number of hours. The whole system 
of modern industry is based on the thought of collective or 
cooperative action and all the employees of a railroad system 
are put upon the same basis. 

In reality the average person who goes to a corporation 
for employment is not able to make a bargain. He states 
his demand for employment and the employer replies, 
"We are paying $2 a day." The employee has two alterna- 
tives — he may take the $2 a day, or he may do without the 
job. He has no chance of making a bargain. He must 
either accept or reject the ultimatum. A bargain may be 
made only between those who are on an equal footing. 
The employee who must sell his labor at once or starve, and 
the employer who may retain his capital in a non-employed 
state for a considerable time without any particular loss to 
himself, are not on equal footing. One is forced to act at 
once, the other is in a position where he may wait if he so 



COLLECTIVE BARGAINING AND THE OPEN SHOP 381 

desires. To meet this difficulty, trade unions have been 
organized. The thought underlying the trade-union move- 
ment is the desire for a collective bargain. Without the 
collective bargain the trade union would be impossible. 

In modern industry trade unions are organized on a 
national or international basis. At the time M^hen the em- 
ployer of a given factory made a bargain with his own em- 
ployees represented by their shop committee, something like 
a fair collective bargain was possible. Later the employer 
found that he was facing not only his own employees but 
those of a score of other manufacturers in the locality. 
The unions were enlarged until they became national in 
scope, and then in case a group of employees had difficulty 
with their employer the whole power of the national union 
was directed against him. At once it became evident that 
the employer was not in a position to make a fair bargain. 
He was one man facing a national organization. He was 
dealing single-handed with the employees of all the manu- 
facturers in the country who were engaged in his trade. 
As a result, many manufacturers were defeated in strikes, 
or were forced to grant concessions without a strike. To 
add to the discomfort of men against whom strikes were 
called, those engaged in the same business did all in their 
power to urge unions to strike against their competitors. 
Such action, they believed, gained for them more markets 
and better trade. In the long run, however, this policy did 
not prove advantageous. When a rise in wages had been 
secured against one employer, the unions set to work to 
secure the same increase against all the employers in the 
same line. It soon became evident, therefore, that if the 
unions were organized on a national scale, the employers 
must do likewise if they were to preserve a fair balance of 
power. The manufacturers of the country, therefore, 
organized the National Association of Manufacturers, which 
in turn did its best to organize the employers in all large 
towns and cities into local employers' associations. 



382 TEXT-BOOK OF ECONOMICS 

In its contention the union no longer met the single em- 
ployer. Fellow- employers no longer aided each other's 
overthrow. The employers were now standing shoulder to 
shoulder. Instead of individually fighting the union they 
fought it collectively. The forces of the industrial struggle 
became a vast organization of labor on one side facing a 
vast organization of capital on the other, — the American 
Federation of Labor opposing the National Association of 
Manufacturers. This situation is the logical outcome of 
the demand for a collective bargain. 

In the field of modern industry these two great contending 
forces are battling for their respective interests. If one or 
the other side feels aggrieved, and a peaceable agreement 
cannot be reached, the weapons of war become strikes and 
lockouts. 

II. The Open Shop 

All men are not like-minded. They do not all work at 
the same trade, nor are they willing to engage in the same 
movement. If some want something, and some another, 
no collective bargain is possible. There must be a uniform 
demand made by the majority before any effective group 
action can be taken. 

If a number of men unite in order to enforce their demands 
and refuse to work until they get them, they will, in all prob- 
ability, be successful unless the employer can secure enough 
non-union men to take their places and thereby break the 
strike. If the union can make its collective bargain in the 
name of every employee andean prevent anyone from working 
for the man against whom the strike has been called, it has 
a monopoly power by which it can enforce almost any demand. 
This thought is behind the movement for the closed shop. 

In a closed shop only union men may be employed. This 
makes it a "closed shop." The employer must agree to 
employ none other. If the union restricts its membership 



COLLECTIVE BARGAINING AND THE OPEN SHOP 383 

to a limited number or to a certain grade or kind of man, 
the employer virtually agrees to select his employees from only 
this limited number of men. In several cities the power of 
the building trades is such that they have been able to say 
that only union men shall be employed on the building opera- 
tions of the city. As these unions are carefully guarded, 
refusing to admit to membership any large number of men 
at any one time, they have a virtual monopoly of the labor 
market in the building trades of their city. They can decide 
who shall secure employment and on what terms they shall 
work. 

Such a complete monopoly is only possible where the em- 
ployer will agree to employ only union men. When such an 
agreement is made, the "closed shop" is said to exist. It 
affords a monopoly of the most rigid character for those within 
the group of workers thus protected. 

One can readily imagine that, literally speaking, few closed 
shops exist. It is largely a question of comparison. Open 
and closed shops have been grouped under the four follow- 
ing heads. Even these divisions are more arbitrary than 
real. 

(i) The real "open shop" in which any person may secure 
employment without reference to his afhliation or non-affil- 
iation with the union. There are in reality very few shops 
of this description. 

(2) The theoretically "open shop" in which the non- 
union men are discriminated against, although the employer 
declares that he has no intention of discriminating in favor 
of any given class. A shop run on this basis is the "opeji 
shop" for which the employers are at present working. 

(3) The theoretically " closed shop " in which union wages, 
hours, and conditions prevail, and in which non-union men 
may be employed under certain conditions. This shop, like 
number one, is an exception. Its equilibrium is difficult 
to maintain and it can be run only by the most scrupulous 
honesty and good feeling of both parties. 



384 TEXT-BOOK OF ECONOMICS 

(4) The real "closed shop" in which men are discrimi- 
nated against because they do not belong to the union. 

This is the goal toward which the union is striving when 
it demands a "closed shop." Only in such is the monopoly 
power secured absolutely. 

The power to bargain collectively is the basis of all trades- 
union action. The power to secure a closed shop in which 
non-union men are employed is the only basis for monopoly 
power. Without collective bargaining the trade union is 
impossible. Without the closed shop the trade union loses 
much of the power to control wages and conditions of em- 
ployment for which it is organized. 



TOPICS FOR CLASS DISCUSSION 

1. Explain the value of the collective bargain to the labor union. 

2. How much justice is there behind the collective bargain? 

3. What effect has the collective bargain on the employer? 

4. "What does the collective bargain mean to the average wage 
worker ? 

5. What attitude should the public take toward the collective bar- 
gain? 

6. Show the relation between the collective bargain and the " closfed 
shop." 

7. Is the " closed shop " unjust? 

8. Show the justification for the " closed shop " as demanded by 
the union. 

9. Show the justification for the " open shop" as demanded by the 
employer. 

10. What should be the attitude of the public toward the " closed 
shop"? 



CHAPTER LI 

THE EIGHT-HOUR DAY; RESTRICTION OF OUTPUT; PACE 
, SETTING 

I. The Eight-hour Day 

A CENTURY ago work was an end in itself. To-day work 
is viewed as the means to leisure. Ministers preached and 
moralists taught that work was an end to be greatly desired 
for its own sake. Men worked because they believed it was 
the right thing to do, because they enjoyed it, or because 
they were forced to work or starve. At that time poor im- 
plements made long hours of work necessary to produce 
enough to sustain life. Modern invention has provided 
enough for all. To-day men are learning that work is not 
ah end, but a means to secure an end — individual develop- 
ment through the proper use of leisure. 

At the time when men worked from sun to sun, work was 
emphasized as a virtue, and the man who could work the 
longest and hardest was, other things being equal, the most 
virtuous man. Against this attitude, a strong movement 
was begun in the early part of the nineteenth century by Eng- 
lish trade unionists and philanthropists with the slogan : — 

Eight hours for work, 
Eight hours for play, 
Eight hours for sleep. 
Make up the full day. 

A demand was made upon Parliament to pass a law cur- 
tailing the number of hours in the day, thereby affording 
leisure to the working population. In 1847 ^^ ^ct was passed 
2C 385 



386 TEXT-BOOK OF ECONOMICS 

restricting the work of women and children, and consequently 
of the men who worked in the same factories with them, 
to ten hours per day. This was the first great triumph of 
those who advocated a shortened workday. 

In Australia, eight hours has been generally adopted by 
law and movements are now on foot to secure a working-day 
of six hours. The advocates of the six-hour day hold that 
if a man can produce enough in six hours to maintain life 
comfortably, he should work only so long and utilize the 
remaining time in congenial leisure occupations. 

In the United States ten hours is the normal working-day, 
though many industries are on an eight-hour basis. Saturday 
half-holidays are the rule in most of the cities and it is be- 
coming more and more common to give short summer va- 
cations with pay. The laws regulating hours of work have 
not had a general development in the United States. It is 
generally conceded that the legislatures have the right, in 
the interest of the future of the State, to regulate the working 
hours of children. Numerous State laws have been passed 
with this in view. In the case of women, the Supreme Court 
of the United States has recently decided that their labor 
can be regulated on much the same ground. The welfare 
of the race depends on its mothers. The labor of men, how- 
ever, cannot be regulated unless it can be definitely shown 
that the health and morals of the community are endangered 
by a workday whose length is not fixed by law. 

After many years of groping in the dark, men are coming 
to realize that the worker who spends eight hours of his time 
at work, and is then given eight hours for leisure, is more 
efficient than the one who spends twelve or fourteen hours 
of his time at work and has no leisure. The command that 
one day in seven be kept free from work is a recognition of 
the necessity of rest from routine labor. The developments 
of the last few decades all point to a time when men will be 
given a larger amount of leisure. The improvements in 
machinery with the application of mechanical power to 



RESTRICTION OF OUTPUT 387 

industry has made it possible for man to produce enough in 
eight hours of work to supply him with the economic necessi- 
ties. Before the introduction of machinery, thirteen hours 
were sometimes necessary to maintain an existence, but it 
is no longer so ; and as the object of work is not work, but 
leisure, in proportion as the mechanical efficiency is increased, 
the working period should be decreased. 

Underlying the demand of the trade union for an eight- 
hour day is the economic principle that a man can work more 
efficiently during eight hours than he can during twelve or 
thirteen. The unionist is further aided by the fact that 
enough can be produced in eight hours with the aid of ma- 
chinery to obviate the necessity of working for a longer period. 

Although the law has failed to place restrictions on the 
working hours of men, the trade unions have, through their 
organizations, materially affected the working hours. Speak- 
ing generally, the effect of trade-union action has been to 
shorten the hours of labor. A short workday is one of the 
leading demands of all trades unions. In some of the more 
thoroughly unionized industries, like the building trades 
in many cities, an eight-hour day has been established by a 
contract between the employers and the union. In other 
industries the contracts call for nine hours. In all cases where 
unions have secured a foothold they have proved an impor- 
tant factor in reducing working hours. 



II. Restriction of Output 

The improvement in machinery means increased intensity 
and monotony of work. With this increase in intensity has 
come a decrease in the number of hours per day. The change 
was inevitable. It is more nerve-racking to operate a ma- 
chine than it is to do hand work. Besides, machinery can 
be geared up so that a man must work fast in order to keep 
the pace. Men have organized and refused to work as 



388 TEXT-BOOK OF ECONOMICS 

rapidly as the highly geared industry requires, and the cry 
has been raised that the output of the industries in which 
the issue has been raised is being restricted. 

The story goes that a carriage manufacturer in Chicago 
one day overheard a workman say : " How shall I ever make 
this wheel last till noon ? " The man was painting a carriage 
wheel, and upon inquiry the manufacturer found that this 
man's union allowed him to paint only one wheel from the 
time he commenced work in the morning until he stopped 
for dinner. The employer promptly dismissed the man 
and thenceforth ran his factory on a non-union basis. The 
story may perhaps be true, and it at least represents the gen- 
eral idea of restriction of output, but it is not representative 
of general conditions. Undoubtedly there is some restriction 
of output on the part of the trade unions, but the amount is 
probably exaggerated. 

Looking at the matter from a purely altruistic standpoint, 
the worker should have the interests of the country at heart 
and should, therefore, produce as much as he possibly can 
during his working hours, knowing that in that way the 
sum total of the goods of the community will be increased. 
Few men, however, act from purely, or even partly, altruistic 
motives. If the worker can maintain his wages and at the 
same time do less work, he is very apt to do so, particularly 
as he knows that increase in output on his part will not 
increase his compensation. 



III. Pace Setting 

Looking at the question from the selfish standpoint, the 
system of pace setting and the restriction of output are only 
logical outcomes of modern industry. An employer and a 
worker exchange commodities. The employer gives cash 
and the worker gives labor. It is to the interest of the em- 
ployer to pay as low wages as he can. When he is forced 



PACE SETTING 389 

to pay high wages, he complains bitterly. In short, he is 
trying to secure as much labor as he can for as little money 
as he is compelled to pay. On the other hand, the laborer 
is trying to sell as little labor as he can for as high a price as 
he can. In both cases, it is an effort to buy in the cheapest 
market and sell in the dearest. That at all times the interests 
of labor and capital are identical is one of those generalities 
that find little verification in real life. 

A manufacturer of boxes gave the men operating the ma- 
chines a few dollars extra a week, in return for which it was 
understood that they should "speed up" their machines, 
thus giving the men who were handling the material from 
the machines more work to do. At the end of a week one of 
the handlers came to the manager and said: "Gif me my 
money. Me no work here no more. Too much hurry up 
for nine dollars." 

This furnishes an interesting example of pace setting. The 
best men were put on the machines, and paid wages in order 
to set a hard pace for the other men. Those who could keep 
up with the pace were retained. Those who fell behind were 
discharged. Where unions have intervened, a laborer has 
in many cases been able to restrict output. Where unions 
have not intervened, pace setting has often been carried 
to the extremes found in the sweating system. Men and 
women have been driven by every possible device to in- 
crease the amount produced without a corresponding increase 
in wages. 

When the employer gets the worst of the bargain and the 
restriction of iautput is carried to a great extent, he is forced 
to take a lower return from his business. Where the worker 
gets the worst of the bargain and has the pace set by the 
strongest and most capable man in the establishment, his 
life is rendered miserable. He must keep up or get out. 

It is hard to say whether pace setting preceded restriction 
of output, or whether the reverse was the case. At all events, 
it is certain that one aggravates t^e other, and that the 



39© TEXT-BOOK OF ECONOMICS 

stoppage of one is not probable without the stoppage of 
both. 

Neither the attitude of the man who pays a pace setter 
nor the attitude of the man who restricts his output abnor- 
mally can be morally justified. Each is selfishly trying to 
get something for nothing. Neither is willing to do a fair 
share. The object of industrial society should be to secure 
the greatest product with the least human effort. This 
object can be attained when only both the employer and the 
worker are doing the fair thing. 

Men working on low wages will not do good work or pro- 
duce good products, and the employer who pays a wage 
below a living wage is therefore cheating society out of some- 
thing that society should receive. 

Men who receive wages and do not render a fair return in 
labor are also cheating society by depriving it of commodities 
which it should have. From both standpoints, restriction 
of output and pace setting are unsatisfactory. Which 
causes the other cannot be definitely decided, but it does not 
enter into the discussion. Neither should be allowed to 
exist, as both are detrimental to the welfare of the com- 
munity. 

The ideal to which industry is striving to attain is a normal 
day, which will allow for leisure as well as for productive 
effort, — a day that will not be unfairly " speeded up" by 
abnormal processes, and which will not be marred by an 
unfair restriction in the amount of the industrial product. 



THE EIGHT-HOUR DAY 391 



TOPICS FOR CLASS DISCUSSION 

1. What is the economic basis for the eight-hour day? 

2. Is the eight -hour demand any more reasonable now than it was 
a hundred years ago? 

3. What is the effect of an eight -hour day on workers? 

4. What is the effect of an eight-hour day on the quahty and quan- 
tity of the output? 

5. What attitude should the community assume towards the eight- 
hour day? 

6. Is there an economic basis for the restriction of output? 

7. What is the effect of restriction on the consumer? 

8. Should the restriction of output be tolerated? 

9. Why is pace setting resorted to? 

10. What is the effect of pace setting on the worker? 

11. What is the effect of pace setting on the product? 

12. Should pace setting be tolerated ? 



CHAPTER LII ' 

STRIKES AND LOCKOUTS; BOYCOTTS AND BLACKLISTS 

I. Strikes and Lockouts 

The strike is an organized cessation of work initiated by 
the employees for the purpose of enforcing their demands 
or of resisting demands of the employer. The lockout is 
a cessation of work initiated by the employer for the purpose 
of enforcing his wishes regarding relations with his employees 
or of resisting their demands. 

From the standpoint of the employer, the employee, and 
the general public, there is practically no difference between 
the strike and the lockout. In the one case the employee 
initiates the cessation of work. In the other case it is initiated 
by the employer. In both cases, however, work ceases, and 
the effects of the cessation of work are as serious in one in- 
stance as in the other. For all general purposes the argu- 
ments applied to the strike may be applied with practically 
the same force to the lockout and vice versa. In this dis- 
cussion the strike only will be taken up and analyzed, since 
the analogy between the two is apparent to all. 

There are three points of view from which the strike will 
be considered: first, the point of view of the employer; 
secondly, the point of view of the worker ; and thirdly, the 
point of view of the general public. 

Whether the strike succeeds or fails, it curtails the output 
of the factories or mines involved. From the standpoint of 
the employer this is a bad thing, because it removes his source 
of profits. It is also injurious to him, because through a 

392 



STRIKES AND LOCKOUTS 393 

protracted strike his customers are forced to go elsewhere 
to secure what they want, and as a result they are gradually 
alienated from his business. During the anthracite strike 
of 1902, for example, large numbers of firms, being unable to 
secure anthracite coal for manufacturing purposes, remodeled 
their furnaces to burn bituminous coal and after the strike 
was over never resumed the use of anthracite. This is but 
an illustration of the general tendency in many strikes and 
lockouts. 

In spite of police regulations and of the efforts of officials, 
the amount of property destroyed in many strikes is consider- 
able. While no certain estimates can be made, the destruc- 
tion in some strikes runs into the hundred of thousands of 
dollars. Most of the property loss falls on the employers, 
and is a very real item in estimating the effects of strikes 
upon them. 

In a strike of long duration the employer is very apt to 
find at the end that many of his best men have gone to work 
for some rival. The winning of the strike may not compen- 
sate for the disintegration of his labor force. 

If a strike is won by the strikers and a raise in wages is 
secured, the added labor cost makes a serious item in the 
budget of the employer. From many standpoints, therefore, 
the employer is opposed to strikes. They are against his 
interests. 

Looked at from the standpoint of the worker, the strike 
is somewhat different in its effects. It is one of the most 
effective weapons which the workers at the present time 
possess in securing from the employer increased wages, 
decreased hours, and better working conditions generally. 
On the whole, it is fair to say that most of the concessions that 
have been secured by the workers have been obtained through 
the medium of strikes, or threatened strikes. 

At the same time the strike is a calamity to the average 
worker. Wages stop at once, and while the union men may 
be supplied with strike benefits, these are in most cases 



394 TEXT-BOOK OF ECONOMICS 

inadequate to meet the former demands of the family. 
Unless industry is booming, it is often difficult for a large 
body of striking men to secure employment elsewhere in their 
lines. Many times the active leaders of the strike, and often 
all who participate at all in the strike, are discharged when 
work is resumed. If these men live in a small town depending 
upon one or two industries, it is practically impossible to again 
secure work in that town. The strike may well be described 
as a "mingled joy" to the employee. On the whole, he is 
benefited by it, and yet to secure this benefit he must often 
suffer a loss in wages, with its resulting hunger and privation. 

But besides labor and capital, the public has a deep interest 
in the question of strikes and lockouts. It is on the public 
that the burden of these industrial wars ultimately falls. 
A strike curtails production. This means that the public 
will have less to consume during the ensuing period. Very 
often, as in the anthracite coal strike, the strike results 
in a temporary increase in prices; and where- strikes are 
successful they are very often followed by a rise in the price 
of the product to cover the increase in wages which the strike 
brought about. 

The destruction of property, the law breaking, and the 
general violence incident to strikes are some of the most 
serious menaces to public welfare. Anything which increases 
law breaking or disregard for the welfare of society is essen- 
tially harmful. The strike with its law-breaking tendencies 
often has a distinctly lowering effect upon the tone of public 
morals. 

Speaking generally, the strike has resulted in raising the 
standard of many people. To that extent it is a good thing. 
It keeps alive in the popular mind the thought of- the necessity 
of change and progress, and to that extent it is a good thing. 
The question which it is necessary for the public to ask itself 
is, has this increased standard of living and this suggestion 
of progress been purchased at too high a price? It is prob- 
able that the answer to this question will be, yes. Looking 



BOYCOTTS AND BLACKLISTS 395 

at the strike from the standpoint of the general public, it is, 
as a whole, disastrous, just as war, from the standpoint of 
humanity, is disastrous. Both are uneconomic, though per- 
haps sometimes necessary. 

The burdens of all forms of conflict, whether they be race, 
military, or industrial, rest upon the community. It is the 
consumer who makes good the loss by paying higher prices. 
If the standard of living for the masses can be raised and 
progress insured without resorting to strikes, public interest 
requires that they be minimized, if not eliminated. Some 
people see in compulsory arbitration a solution to the problem. 
A discussion of this point will be reserved for a later chapter. 

The laborers themselves are coming to realize that strikes 
are costly. The progressive leaders resort to strikes only in 
the last extremity. They have come to believe that the 
strike is apt to do more harm to the cause of labor than it 
does good. It is far more useful as a threat than it is as a 
weapon. The rise of employers' associations during the last 
few years and the great funds which they have raised to fight 
strikes make the settlement of disputes by strikes a method 
not only costly to labor and capital, but to the public as 
well. 

II. Boycotts and Blacklists 

A boycott is an organized refusal on the part of a group 
of persons to buy goods from another person or group of 
persons. The boycott is the weapon of the worker and of 
the general public. Occasionally it is used by business houses 
against each other, but in general it is confined to the workers 
and the general public. 

The blacklist is the weapon which the employer uses against 
his workers. As in the case of the boycott, the blacklist is 
often used by one business interest against another business 
interest, but in general it is an employer's weapon. Both 
boycott and blacklist are organized efforts. They are illus- 
trations of group action. 



396 TEXT-BOOK OF ECONOMICS 

For clearness, a boycott may be divided into several classes. 
First, there is the simple boycott in w^hich a group of workers 
w^ho have been working for a certain man refuse to buy his 
products. Boycotts usually originate in this way, but they 
soon extend to the second form, or compound boycott. 

In a compound boycott the workmen directly interested 
in injuring the boycotted person or persons enlist the co- 
operation of third parlies. Instead of the employees of John 
Smith merely getting together and refusing to buy his hats, 
they go out into the highways and byways and advise their 
friends, relatives, and neighbors not to buy hats made by 
Smith. 

The third form of boycott is negative in its effects. It 
takes the form of a fair list or white list. The union period- 
ical prints a list of firms which are described as "fair," that 
is, union hours and union wages obtain throughout their 
plants. The Consumers' League also publishes what they 
call a "White List," which is a list of firms which do not 
violate factory laws and which conform to certain regulations 
prescribed by the League. 

The fourth form of boycott is the "unfair" hst or as it has 
been called, the "we don't patronize" list. The labor pe- 
riodical, instead of publishing the names of firms who provide 
fair conditions for their employees, publishes the names of 
firms who do not provide fair conditions. 

The second form of boycott is regarded as a conspiracy. 
The fourth form of boycott has been prohibited in some 
cases by the courts. Both forms have developed remarkably 
and their use has become quite extensive. The power which 
labor derives from using them is in some cases very great. 
Since some recent court decisions, however, the effectiveness 
of the boycott from the standpoint of the worker is materially 
lessened. 

Is the boycott uneconomic as is the case with the strike? 
Can it be justified on any line or reasoning? Perhaps not, 
and yet it is a time-honored institution. In colonial times 



BOYCOTTS AND BLACKLISTS 397 

our forefathers boycotted whatever English goods were dis- 
tasteful to them. They boycotted fellow -townsmen who 
were supposed to have pro-English sympathies. To them 
the boycott was an effective instrument in securing their 
rights. The boycott is likewise one of the most effective 
weapons of the trade union. The fair list, moreover, assists 
manufacturers and employers who desire to maintain good 
conditions. The unfair list helps to force manufacturers 
either to adopt fair conditions or else go out of business. 
Both of these ends are desirable ones. 

The blacklist has been extensively used in past years. 
Groups of employers in the same business have made out 
lists of employees who had made themselves objectionable, 
either through union activity or for some other cause, and to 
these men they have refused employment under any con- 
sideration. This means they must seek a new trade or else 
starve. It is thus an effective weapon in the hands of the 
employing class against the union. 

TOPICS FOR CLASS DISCUSSION 

1. Why do men strike? 

2. Give the historical development of the strike. 

3. Is the "strike " spirit a good one for the community? 

4. Is any one helped by strikes? 

5. On what grounds can the strike be justified? 

6. Can the "strike " spirit be eliminated? 

7. What attitude should the community take toward strikes? 

8. What is a boycott? 

9. Give some historical examples of boycotts. 

10. Is the boycott spirit a good one? 

11. Is any one helped by the boycott? 

12. What is the relation between the boycott and the blacklist? 

13. What is the eflfect of the blacklist on industry? 

14. What attitude should the public assume toward boycotts and 
blacklists ? 



CHAPTER LIII 

THE INJUNCTION IN LABOR DISPUTES 

An injunction may be defined as an order of the court 
commanding a person or group of persons to refrain from 
doing the thing or things specified in the order. It is issued 
by a judge on the ground of preventing damages which would 
be irreparable if the case were permitted to go through the 
regular processes of law. 

The injunction has so often been used of late in labor dis- 
putes that the expression "government by injunction" has 
become a current phrase in the community. The injunction 
is invariably used by the employer. He finds it a most 
effective means by which to control the actions of strikers. 
In every strike, as has already been pointed out, some kind 
of coercion is resorted to. This coercion varies from the 
peaceful visit to a strike breaker's house, and an argument 
which aims to convince him that he should join the union 
or at least cease breaking the strike, to the riot or some other 
form of physical violence against the person of the strike 
breaker. In many strikes the violence extends to the prop- 
erty of the employer as well as to the body of the strike 
breaker. 

In both cases the employer finds his quickest and surest 
remedy in an injunction, commanding those concerned in 
the strike to refrain from the actions which are resulting 
in the destruction of the employer's property, or in the injury 
to his business by persuading or forcing strike breakers to 
cease work. 

398 



THE INJUNCTION IN LABOR DISPUTES 399 

The injunction is effective because it must be obeyed 
absolutely. There is no process of law involved in forcing 
this obedience. The court is the direct agent of the execu- 
tive and legislative authorities in this respect, and its orders 
are backed up by all the power of the State or nation. 

The punishment for offenses against injunctions are limited 
only by the discretion of the court. There is no limit gov- 
erning the severity of penalties, other than the desire of the 
judge to enforce obedience to his orders. The penalties may 
be reviewed by a higher court, but the latter hesitates to 
overrule the attempts of a colleague to punish "contempt 
of court." 

While the injunction is thus cited by the employer as the 
most valuable and most effective means of protecting his 
property against strikers, it is in the same proportion opposed 
by the labor union. The injunction has proved a most 
effective weapon in overthrowing union control. The power 
of the union rests on two things: first, the right of the 
members to bargain collectively with the employer; and 
second, the power to enforce demands by a strike which has 
at least a reasonable chance of being successful. The use 
of the injunction to restrain the strikers has taken from them 
the opportunity of resorting to many acts which were ordi- 
narily used as the weapons for winning strikes. By decreas- 
ing the possibility of successful strikes, the court has decreased 
the possibility of effective trade unions. The foundation of 
the trade union is at stake, and the whole energy of the union 
is bent against "government by injunction." In proportion 
as the employers have resorted to injunctions and secured 
from the various courts an extension of its scope, the various 
unions have opposed its use constantly and bitterly, and have 
been for some time endeavoring to secure a federal law which 
would prevent the forms of injunctions which have been 
so disastrous to labor union interests. 

In the Pullman strike, an injunction was used against the 
leaders of the strike, and as this injunction was issued by a 



400 TEXT-BOOK OF ECONOMICS 

federal court (the United States mails were being interfered 
with), it was enforced by a resort to federal troops. A judge 
has recently enjoined a labor union against publishing a list 
of the " unfair " establishments ; that is, establishments which 
do not provide union hours, wages, and other union conditions 
for their employees. The uses to which the injunction may 
be put are countless. 

There are few ways in which the State or national govern- 
ment can be directly and speedily drawn into a controversy 
between the employers and employees ; and except in large 
cities, local governments are apt to be powerless in time of 
labor troubles to protect life and property. It is therefore 
to the interest of the employer to have troops brought to the 
scene. The injunction is the only means of accomplishing 
this, and is therefore eagerly sought on'every occasion and is 
as eagerly opposed by the men who are seeking to win out 
against their employer. It is resented as placing all union- 
ists in the light of unthinking animals. 

The courts formerly issued injunctions in a limited number 
of cases, and then only in cases where there was proof that 
a continuance of the act complained of could not be recom- 
pensed in damages by a recourse to the ordinary processes 
of law. In this stage of the use of the injunction the courts 
did not enjoin in any case where the complainant had a clear 
remedy at law. If, however, no such remedy was afforded, 
action by the courts was always forthcoming. The injunc- 
tion thus used proved to be a very valuable adjunct to the 
methods of judicial procedure. 

In the last fifteen years, however, the use of the injunction 
has been placed on an entirely different basis. Labor unions 
have been enjoined from doing almost every imaginable 
thing. In the case of the Pullman strike, the injunction 
commanded "all other persons whomsoever who are not 
named therein from after the time when they shall severally 
have knowledge of this order." This is a "blanket injunc- 
tion" as it has come to be called. It affects thousands of 



THE INJUNCTION IN LABOR DISPUTES 40I 

people without naming them directly, and subjects them to 
extreme penalties if they presume to violate the orders of 
the court. 

Any person seen violating the order would be brought 
before the court by officers and fined and imprisoned or 
punished in both ways to any extent at the discretion of the 
court. There need be no trial by jury or any other process 
of law. The whole affair is in the hands of the judge who 
issued the order. By this method of procedure, one man 
sitting as judge has in his hands an unlimited amount of 
power, which the original framers of the Constitution prob- 
ably did not intend to lodge in the hands of any one individual 
or department. 

The cause of the development of injunctions in labor 
disputes is obvious. The American process of justice is 
proverbially slow. It rests in the hands of the local con- 
stable. If he is unable to handle the situation he summons 
the sheriff. If the sheriff finds himself unable to cope with 
the problem he may call upon the governor of the State who 
sends in the State militia. It is only after the State militia 
has failed, that the governor of the State or the State legisla- 
ture may call in federal troops. 

All of these processes are, however, slow. The sheriff 
cannot act alone. He must summon a large number of dep- 
uties, arm them, and get them to the scene of the trouble. 
Neither can the governor at a moment's notice place at the 
scene of trouble the State militia. That body must be ordered 
out. The members must leave their respective positions, 
prepare for service, and then be transported to any portion 
of the State where trouble may have arisen. 

In Pennsylvania a plan has been developed which obviates 
this difficulty. Four companies of State constables are 
stationed in different parts of the State, subject to the call 
of the governor. In general, throughout the country, this 
part of the law enforcing machinery is of the most primitive 
character. 



402 TEXT-BOOK OF ECONOMICS 

Not only are the processes slow, but the local officers, such 
as the constable, sheriff, and in many cases even the governor, 
are strikingly influenced by the fact that the men against 
whom the injunction has been issued and against whom their 
aid is invoked are the voters who have put them in office, 
and to whom they must look for a second term if they desire 
it. When the electorate is acting concertedly in a strike 
or other demonstration, the elected officers are slow to give 
an order which will make them unpopular with their con- 
stituents. 

The slowness and unwieldiness of the system leaves the 
employer in a position where he sees his property being 
destroyed by riots and strikes without any possibility of 
redress. The sheriff is inactive or slowly getting ready for 
action and the whole situation is in a turmoil. Even could 
the extent of the damage be proved it is useless to bring 
action against the trade unions. They have no available 
funds. This is a case of "irreparable injury," and follow- 
ing the custom of issuing injunctions the courts begin to 
issue orders restraining the action of strikers in cases of 
industrial conflict. 

Such a use of the injunction is in a direct line with the 
precedent ordinarily set down. It is in the abuse and not 
in the use of the injunction that the courts have encountered 
the bitter hostility of the working classes. As has already 
been mentioned, instead of enjoining specific individuals 
against performing specific acts, the courts issue "blanket 
injunctions" against performing any act which will injure 
in any way the property of the person who is complaining. 
In this use of the injunction the court often enjoins acts which 
are clearly in themselves illegal and for which there is an 
adequate remedy in criminal law. What is needed in such 
cases is not a new legal process but an enforcement of the 
processes already established. 

The arguments in favor of the injunction as at present 
used, can be summed up thus : — 



THE INJUNCTION IN LABOR DISPUTES 403 

(i) The judiciary of the United States is a court of last 
resort in any action. The judge has really the final say in 
all cases, and it is therefore reasonable that in all cases where 
real and irreparable injury will result if immediate action 
is not forthcoming the courts should take such action. 
There is no other agency provided in the machinery of 
government which is capable of coping with the question 
except the court. 

(2) Property rights are the fundamental rights of the 
country. It is upon the sacredness of private property that 
the government and the institutions which accompany it 
have been developed. If this feeling of the sacredness of 
property is broken down, the institutions and the govern- 
ment will be endangered. It is, therefore, proper that every 
means should be taken to protect property rights. 

(3) Many unions are wholly irresponsible and the em- 
ployers can in no way compensate themselves in damages for 
the property destroyed by them. Outside of the large cities, 
great damage is done by strikers in a short time. Before 
the ordinary processes of law can be evoked, property is 
destroyed. 

(4) The ordinary processes of law are not adequate. In 
the first place they are too slow, and in the second place 
the officers who are elected and sworn to enforce the pro- 
visions of the law fail signally in their duty. They desire to 
make peace with the voters who elect them rather than to 
enforce the law. 

(5) The only adequate remedy and safeguard of property 
interests is a court injunction, to be enforced by all the power 
of the law. Such an order commands respect and furnishes 
a guarantee of the stability of society. 

On the other hand, those who are opposed to the use of 
the injunction in labor disputes hold that : — 

(i) The injunction does away with the constitutional 
guarantees of the Bill of Rights. In criminal cases every 
person is entitled to a speedy and public trial by an impartial 



404 TEXT-BOOK OF ECONOMICS 

jury of the State and district where the offense has been 
committed. He is entitled to be informed of the character 
of the accusation made against him, to be confronted with 
the witnesses against him, to have the privilege of obtaining 
witnesses in his favor, and to have counsel for his defense. 
The ordinary injunction proceeding violates all of these 
guarantees. In the first place, injunctions are issued to 
cover cases already made criminal by the law. The offenses 
are, therefore, offenses against the criminal law primarily, and 
the offender is entitled to the rights set forth in the Constitu- 
tion. In spite of this fact, injunctions are issued by judges 
upon the request of one party, without giving due considera- 
tion to the arguments of the opposing party. Any violation 
of the injunction so issued is punishable by any penalty 
which the court may desire to inflict, without resorting to 
legal methods. 

(2) The lodging in the court of such extensive powers 
makes the courts executive as well as judicial bodies. In 
our government of checks and balances, it was intended that 
the executive, legislative, and judicial functions should be 
distributed among the several branches of the government 
and that the various branches should exercise each its des- 
ignated functions. The belief of the founders of the govern- 
ment was that if one branch was permitted to secure control 
over the functions of another branch, the result would be 
either executive tyranny such as is exercised by a despot, 
or judicial tyranny as was exercised by a Star Chamber. 
When the court assumes not only to interpret the laws but 
also to execute them, it is taking to itself executive functions 
and is setting a precedent dangerous to the free institutions 
of the community. 

(3) It follows from this that the judiciary will become 
either tyrannical or contemptible. If the injunctions are 
enforced and the court assumes executive as well as judicial 
functions, the result will inevitably be tyranny. If the 
injunctions are not enforced, those against whom they were 



THE INJUNCTION IN LABOR DISPUTES 405 

issued will acquire a wholesome contempt of the law and 
legal proceedings. In either case the effect is undesirable. 

(4) Blanket injunctions are a violation of the rights of 
American citizens. If injunctions are to be issued they 
should be directed against specific persons, ordering them to 
cease doing specific acts. The blanket injunction, covering 
activities, is a dragnet which sweeps in good and bad alike. 

(5) As the injunction has been used, it causes bitter feel- 
ing against the government in all its branches. It is unwise 
for any branch of the government to resort to methods which 
are unfair and which lead to well-founded hostility. 

The agitation in favor of an anti-injunction law has been 
carried on vigorously. As yet no definite progress has been 
made, but it is evident that the time is approaching when 
the question will have to be settled as to whether the court 
is to be a judicial body and interpret the law, or whether 
it is to become executive as well, and execute the law. It 
is well established in history that any system which centralizes 
executive control in the hands of men not elected by the 
people, and not directly responsible to them, is dangerous 
to democratic institutions. The use of the injunction as 
it has developed is opposed to the fundamental ideas on 
which the American government is founded. The attitude 
of some judges has placed the whole judicial system in an 
unfavorable light before the community. If the consti- 
tutional guarantees are to be lived up to, the present use of 
the injunction in labor disputes must be considerably 
curtailed. 



TOPICS FOR CLASS DISCUSSION 

1. What was an injunction originally intended to cover? 

2. Why has the injunction been applied to labor disputes? 

3. Justify the application of the injunction to labor disputes. 

4. What is the attitude of the union toward the injunction? 

5. What is the attitude of the employer toward the injunction? 



4o6 TEXT-BOOK OF ECONOMICS 

6. What are the chief arguments advanced by the union against the 
injunction ? 

7. Is the injunction as used in labor disputes against public pohcy? 

8. Who benefits most by the injunction? 

9. Upon whom does the burden of the injunction fall most heavily? 
10. What should be the attitude of the public toward the injunction? 



CHAPTER LIV 

THE TRADE AGREEMENT AND ARBITRATION 

Trade unions are the means which the worker employs 
to provide himself against bad conditions. The strike and 
the threat of a strike are among the most powerful weapons 
available to the union in enforcing its protests and demands. 
In many ways the strike is recognized as detrimental to all 
concerned. Can some means be devised whereby the worker 
will be fairly treated, while at the same time production 
is not constantly interrupted and society thrown into dis- 
order by the recurrence of strikes ? In the section on Strikes 
and Lockouts an attempt was made to point out the fact 
that employers, the public, and the more advanced labor 
leaders generally recognize the fact that the strike is un- 
economic and wasteful. To the employers and the public 
it is a calamity. To the laborers, even at best, it has its 
disadvantages. The loss in wages, the bad feeling, the dis- 
charge, and the rising prices, all come back to the striker 
to convince him that the strike, even when it is successful, 
has been paid for at a very high figure. 

With such general concurrence of opinion as to the un- 
desirability of strikes, it seems that some method of avoiding 
them could be easily devised. Many schemes have, in fact, 
been proposed, and they group themselves under four head- 
ings, the first of which is the trade agreement. The trade 
agreement is merely a collective bargain. Once a year or 
once every two years a committee appointed by the em- 
ployers meets one appointed by the workers, and these two 
committees go over the question of wages, hours, and working 

407 



4o8 TEXT-BOOK OF ECONOMICS 

conditions, discuss the outlook, and decide on the conditions 
which shall govern the trade during a period of a year or 
for as long as the agreement may be made. At the end of 
this time another session is held, the committees go over 
the ground again, and endeavor to reach a conclusion for 
the succeeding period. This method of avoiding strikes 
has proved effectual in many cases which involved reliable 
unions, such as the railroad brotherhoods, the boot and shoe 
workers, the miners' unions, and many others. But the public 
in general is wholly unfamiliar with this phase of the situation. 

For this reason many people have a wrong impression of 
unions. They believe that they are organizations which 
are led by wild-eyed walking delegates, and which spend 
half their time in quarreling with the employers and the 
other half in striking and rioting. This impression is de- 
rived from the scare headlines of the newspapers, and in 
truth it represents a very accurate summary of the news 
items respecting the unions. As a matter of fact, however, 
not one union in five ever gets into the daily newspapers at 
all. 

If the lives of all citizens were judged on the basis of those 
whose pictures appear in the papers after they have wrecked 
a bank, attempted suicide, or done some other "sensational" 
act, the average citizen would be placed on a distinctively 
low plane. Unions, however, are often judged on precisely 
this ground. A strike involving a riot is printed and com- 
mented upon ten thousand times. A peaceful settlement 
of differences is scarcely noticed. 

A large number of union differences are settled quietly by 
means of collective bargains or trade agreements for specified 
periods, which are renewed from time to time as they fall 
due. Scarcely any of these pacific methods of settling strikes 
and disorders receives particular notice in the daily press. 

If it can be put in practice, the collective bargain is after 
all the ideal method of settling labor disputes. No outside 
force need be imposed, and the two parties by going together 



THE TRADE AGREEMENT AND ARBITRATION 409 

can settle their differences in a way satisfactory to both. 
Now and then a disagreement and a strike may result from 
this method of bargaining, but as a rule it works in a most 
commendable way. 

The second form of strike preventive is the voluntary 
submission of the points at issue to an arbitration board 
of three members, one appointed by the workers, one ap- 
pointed by the employers, and the third selected by these 
two. This method of settling differences is much less 
satisfactory than the trade agreement, as the conclusion is 
reached by third parties who are not always directly inter- 
ested in the problems, and both of the contending elements 
may therefore be dissatisfied with the result. This form of 
voluntary arbitration is negligible in its importance so far 
as labor disputes are concerned. 

The third form of strike preventive is the voluntary State 
board of arbitration. This form, which has been fairly 
well worked out in some of the American States, provides 
that the governor of the State shall appoint a number of men 
in the various districts who are always prepared to act as 
a board of arbitration, provided one or, in some cases, both 
of the parties in the controversy request the State board to 
act. Except in a few cases this form of arbitration is like- 
wise unsatisfactory and is seldom resorted to. 

The fourth form of strike preventive is compulsory ar- 
bitration, a distinctively Australasian experiment. Under 
this method of settling difficulties, strikes and lockouts are 
forbidden under penalty. When industrial questions arise, 
they must be submitted to the properly constituted local 
authorities, who decide the points at issue in exactly the same 
way that a court of law decides legal points. The advocates 
of this system of compulsory arbitration hold that it is just 
as ridiculous to allow a trade union and an employer to 
fight out their differences as it would be to allow a man 
whose contract had been broken to go out and thrash the 
man who was guilty of breach of contract. In both cases 



4IO TEXT-BOOK OF ECONOMICS 

the power of the State should be invoked to punish the offender 
and to do justice to the person injured. The Australasian 
system is merely a system of individual judiciary worked 
out on the same principles as the law courts and having 
jurisdiction over disputes between employer and employee. 

It has been very seriously proposed to introduce into 
America the system of compulsory arbitration. Its ad- 
vantages are obvious. Strikes and lockouts are rendered 
impossible, and thus the evils attending industrial stoppages 
are eliminated. All parties are given a fair hearing before 
an impartial tribunal, the members of which have had an 
opportunity to study in considerable detail the various 
questions arising in labor controversies. Under this system 
it is not possible for workers to enforce unfair wages, nor 
is it possible for employers to force workers to accept unfair 
wages or hours. 

By those who oppose it the system is characterized as 
un-American in that it is interfering with the rights which 
an American citizen believes he should possess of making 
contracts and doing other things which he sees fit, without 
being responsible to the courts for any such action. Nine 
tenths of the people of the United States, probably, hold a 
view that a system of compulsory arbitration would subject 
men to an unnecessary amount of legal supervision. At 
the same time a considerable group of the workers in the 
community distrust the system because of the political elements 
which would probably enter into it. For the present, there- 
fore, the system of compulsory arbitration is impossible 
in the United States, and although it has proved a remarkable 
success where it has been fairly tried, it is probable that for 
some time to come we must struggle on in America, making 
the best headway we can with the trade agreement and the 
various forms of voluntary arbitration which have proved 
far from satisfactory heretofore. 



THE TRADE AGREEMENT AND ARBITRATION 411 

TOPICS FOR CLASS DISCUSSION 

1. What is a trade agreement between employer and employee? 

2. What is the value of the trade agreement in settling labor dis- 
putes? 

3. Describe the forms of voluntary arbitration. 

4. What are their respective advantages? 

5. As between the trade agreement and arbitration, which is the 
more desirable? 

6. What is the New Zealand system of compulsory arbitration? 

7. What advantages and disadvantages does the union see in com- 
pulsory arbitration? 

8. What advantages and disadvantages does the employer see in 
compulsory arbitration ? 

9. What advantages and disadvantages has compulsory arbitration 
for the pubhc? 

10. Of the various methods advocated for settling disputes between 
labor and capital, pick out the one you think is the best and tell why. 

11. Should the State or the federal government take the lead in 
setthng industrial disputes? 



CHAPTER LV 

THE TRADE UNION 

Considered historically, the trade union, as such, is 
a development of the nineteenth century. While some 
authorities seek to trace a forerunner of the trade union in 
the guild system, industry was never sufficiently centralized 
until the nineteenth century to provide a field for great trade- 
union activity. With the development of the factory system 
and the centralization of the vv^orking population in large 
shops and towns, unions began to grow. 

There is no certain record of a union in the United States 
before 1803, when there was a strike of the New York Society 
of Journeymen Shipwrights. Before 1850 the activity of 
the unions was widely diversified and covered all kinds of 
reform. They worked for the abolition of slavery, the 
establishment of woman suffrage, and nationalization of 
the land, as well as for the ordinary objects for which trade 
unions stand, — the increase of wages, decrease of hours, 
and bettering of working conditions. Between 1850 and 
1865 the movement to nationalize unions grew in strength. 
Their policies were also narrowed and their activities con- 
fined to the more particular union involved. The unions 
began by trying to reform many evils, but gradually settled 
down to a policy of attempting only a specific group of reforms. 
Since the Civil War the tendency of the unions has been 
to unify their efforts and make their demands concrete. 
It is since the war that the great development of trade 
unionism has taken place. 

Following the establishment of trade unions on a national 
scale after 1850, unions of all kinds of workingmen were 

412 



THE TRADE UNION 413 

organized with a central control. The first movement had 
endeavored to unionize the men in some one trade, such 
as typographical workers or the railway employees, on a 
national basis. The latter movement aimed at organizing 
the workers of the entire country. The International As- 
sociation of Workingmen was begun in 1864. In 1866 the 
National Labor Union was formed. In 1869 the Knights 
of Labor were organized, and the International Brother- 
hood in 1873. In 1 88 1 the American Federation of Labor 
was established. All of these unions are of little or no 
importance at the present time, with the exception of the 
American Federation of Labor. Its success has been 
phenomenal, and it has succeeded in affiliating with it a 
majority of the trade unions of the United States. Unlike 
the Knights of Labor, which was a semi-secret organization, 
controlled from a central ofiice, the American Federation 
of Labor permits most of the control to be exercised by the 
local unions, and requires that only the greater questions be 
referred to the Federation. 

The officers of the Federation act in a consulting rather 
than in a directing capacity. In that fact lies the germ of 
their success. Local affairs cannot be directed from a central 
point without violating some of the rights or privileges of 
localities. In the United States no union seems to succeed 
in the long run which fails to recognize this principle. 

Until recently unions were organized in some particular 
trade, hence the name "trade union." The carpenters, 
the bricklayers, or the typesetters each had a union, open 
to that specific trade only. The last quarter of the nineteenth 
century has witnessed a radical change in this respect be- 
cause of two recent developments. In the first place the 
division of labor and specialization in industry so split up 
the various trades that there were no "trades" in the old 
sense left. A cabinetmaker ceased to be a cabinetmaker 
and became a "dowel sticker" or a "gluer" or a "lathe 
man." This splitting up of trades makes the old-line trade 



414 TEXT-BOOK OF ECONOMICS 

unions impossible. Along with this breaking up of the old- 
type trade, large numbers of common laborers came into 
the country. These could tend the various machines which 
replaced much of the old hand labor and which required 
little skill to operate. It became apparent that if the unions 
expected to maintain their existence and do effective work, 
they must secure control of this great mass of common 
laborers. 

Thus the breaking up of trades and the growth of a large 
common labor force compelled the "union " to abandon its 
old "trade" character and become a " labor " union, including 
men in all kinds of trades, provided they belonged to the 
same industry. The United Mine Workers of America 
includes miners, door tenders, dumpers, laborers, drivers, 
trackmen, and men from a number of other trades. This 
is one of the best examples of the modern "industrial" 
unions. It is organized on an industry basis and not on 
a trade basis. Though but an outline, the foregoing de- 
scription of the growth of unions in America is interesting 
because it indicates a tendency in unionism to grow toward 
democracy and home rule in local affairs, with a centralized 
organization to deal with national affairs only. It also 
shows the growth of the big industrial union, as opposed 
to the narrow trade union. 

The value of labor unions is great, though one may not be 
able to approve of all things done in the name of unionism. 
In the first place, it is valuable to its own members. A 
general impression prevails that a very large proportion of 
the workers of the United States are members of unions. 
This is not the case. It is probable that not more than 15 
or 20 per cent of those engaged in trade, transportation, and 
manufacturing and mechanical pursuits belong to the unions. 
If this estimate is correct, the American unions show a 
membership of somewhat over 2,000,000. Exact statistics 
are not available, but be this as it may, there is a large group 
in the community which benefits directly through its mem- 



THE TRADE UNION 415 

bership in the trade unions. The foreigners who come to 
the United States do not at once join the union. In Europe 
their freedom of action has often been seriously restricted, 
and they dislike new institutions. In the course of a year 
or two', however, many of them come to see the value which 
will accrue to them by joining the unions, and they accord- 
ingly enter them. The associations and the education in 
the principles of democracy which membership in a union 
affords are of inestimable value to the immigrant. 

It must be remembered that the more advanced unions 
are distinctly democratic organizations. Their members 
have the fullest power through referendum votes, and are far 
better represented as a rule than the members of the average 
political group. The foreigner coming into this democratic 
environment learns more in a year about the value and 
purpose of representative institutions than he would in the 
political community in the course of the rest of his natural 
life. In the union he has teachers who teach because they 
value intelligence. In the community at large few care 
whether the immigrant learns or remains ignorant. The 
union is almost alone in giving to the adult immigrant an 
education in the use of English and of the institutions of a 
democratic government. 

The desire of the immigrant to take part in the proceed- 
ings of the union and to understand what is going on there 
is a great incentive for him to study English. His associa- 
tion with other men teaches him many things about his new 
country which would never have come to his attention had 
he not entered such a group. The average foreigner who 
comes to America is very prone to remain among his country- 
men, to speak his own language, and to retain his own customs 
and manners. This creates in the country a series of groups 
not easily assimilated and therefore opposed to the develop- 
ment of a homogeneous community. The union presents 
an efficient means of breaking up this tendency and of estab- 
lishing among foreigners the idea of true democracy. 



4i6 TEXT-BOOK OF ECONOMICS 

The chief incentive for workers to join the unions is, 
however, furnished by the desire to increase wages, decrease 
hours, and secure better working conditions. It is for these 
things that the battles of unionized labor are usually fought. 
A history of unionism shows many activities having for their 
end an increase in wages, a decrease in hours, and better 
working conditions. Success has often attended such efforts. 
This is particularly true in places where the unions have 
a virtual monopoly, as in the building trades of some of the 
cities, the typographical trades, and other similar industries 
in which skill, a limited field, and a limited supply of men 
give great monopoly power to the union. 

In addition to the benefits which are secured by the average 
members of the trade union, in the form of better working 
conditions, many of the unions provide accident benefits, 
sickness benefits, insurance in case of death, and benefits 
for those out of work. Each member of the union pays 
in a small sum, and when any member is in trouble, the fund 
thus created is called upon to aid him. In England these 
benefit features of the unions have become far more prominent 
than in this country. There the trade-union problem has 
been fought out and settled rather definitely for some time. 
In the United States, however, the exact status of the union 
movement is not so fixed. 

Trade unions are, then, of value to their members because 
they increase wages, decrease hours, secure better working 
conditions, and provide various forms of out-of-work, acci- 
dent, sickness, and other insurance benefits that make life 
more certain and enjoyable to those who share in such bettered 
conditions. 

While it is unquestioned that the trade union is of value 
to the worker, the average member of the community fails 
to see the trade union as an instrument of any advantage to 
the employer. Nevertheless, the union aff"ords certain ad- 
vantages in which the employer also shares, although they 
are much fewer in number and less in importance than those 



THE TRADE UNION 



417 



secured by the union members. The average union, con- 
servatively conducted, brings together and keeps together 
a homogeneous and efiicient group of men, and by the ex- 
istence of a high standard of membership provides for the 
employer a better group of workmen than he could other- 
wise secure. The work of the union, which results in educa- 
tion and in the development of ideals in the foreigner, is as 
advantageous to the employer as it is to the union man him- 
self. The more intelligent the labor, the more efficient it is. 

From the standpoint of the general public the union is 
often condemned. Nevertheless, here too are advantages. 
In the first place, the members of the union are members 
of the general public, and if their wages are raised or their 
hours shortened or any of the other working conditions 
made more desirable, a portion of the general public has been 
bettered. 

Furthermore, the tendency of the union to educate and 
assimilate men makes of them better citizens and therefore 
personally more competent to carry on the work of the country. 
The raising of the general tone of certain groups of the work- 
ing population which has been accomplished solely by union 
action is a distinct gain for the public. On this phase of 
the question, however, very little is usually printed. The 
emphasis of union items is laid upon the wrongfulness of 
the strike and wickedness of the boycott and the general 
undesirability of the weapons which the unions use to enforce 
their demand, or what they consider their rights. 

It remains for us to state the objections which are often 
urged against unionism. In the first place, it is maintained 
that unions tend to equalize the pay received by good and 
bad workmen, thus taking them from the skilled members 
of the group the incentive to do better work. By reducing 
the work to a standardized measure, and permitting men to do 
only so many pieces of work in a given time, much interest 
is taken out of the work. The union substitutes loyalty to 
the union for loyalty to the community or to the employer. 



4l8 TEXT-BOOK OF ECONOMICS 

All these things are viewed as detrimental to the union man 
himself. 

From the standpoint of the employer, however, the dis- 
advantages urged are even more numerous. In the first 
place, business is stopped by strikes and disturbances, and 
the employer is subject to the constant annoyance of having 
other people "trying to run his business." In the second 
place, the output of the plant is curtailed by the union man's 
refusal to do more than a certain amount of work per day. 
In the third place, the union man is loyal to the union and 
not to the employer, and as no man can serve two masters, 
the employer feels slighted. In the fourth place, where 
the union has secured a dominant control, which in some 
cases amounts to a monopoly, unjust demands may be made 
and enforced in the shape of unusually high wages and annoy- 
ing working conditions. 

From the standpoint of the public the disadvantages of 
the union are rather obvious. Public attention has been 
frequently called to the stoppage of industry, the curtail- 
ment of output, and, more serious than all, the breaches of 
public order. Furthermore, from the standpoint of the 
general public the loyalty to the union is often placed above 
loyalty to the general welfare. Thus far the discussion of 
the union has been confined to certain specific problems. 
It now remains to summarize briefly the whole movement 
and to add a word about certain recent developments. 

Since the middle of the nineteenth century the activity of 
the unions has been directed along more distinctly industrial 
lines. Before that time all kinds of problems and reforms 
were dealt with. By concentrating, the unions have brought 
more pressure to bear at definite points, and have thus made 
their work far more effective; although child labor laws, 
sweat shop laws, and other laws of unquestionable benefit 
to the community as a whole are the result, not only in part, 
but often wholly, of the labor unions' influence. 

The chief activities of the unions have, however, been 



THE TRADE UNION 



419 



directed toward securing for their members a fairer share of 
the product of industry. They attempt to do this through 
(i) increase in wages, (2) decrease in the number of hours, 
(3) a bettering of working conditions, and (4) an organization 
that will through education enable the members of the union 
to see their responsibilities and privileges. Generally speak- 
ing, it is fair to say that the main object of unionism has been 
an increase in the economic well-being of the members who 
join the union. This advance has often been felt by labor 
as a whole. 

The attempts by the unions to secure a fairer share of the 
products of industry have led to an emphasis being laid on 
the right of collective bargaining, the necessity of the closed 
shop in furthering the collective bargain, and the strike, 
the boycott, and various forms of coercion. On the em- 
ployer's side the lockout, the blacklist, and the injunction 
have been relied upon to oppose what the self-interest of the 
employers felt were unwarranted demands of labor. 

So long as the unions were organized on a national basis 
and the employers were either imorganized and competing, 
or else only organized locally, the power of the unions was 
great and many concessions were secured. In some cases 
it is said one employer would pay a labor leader to call a 
strike on a competitor for the purpose of embarrassing him, 
and then no sooner had the union secured concessions from 
one employer than it turned to the others, demanding the 
same concessions. As the employers were competing and 
the employees were combined, the latter fought it out indi- 
vidually with employer after employer until they had won 
an all-around victory. 

But two can play at almost any game. The unions 
organized on a national basis, so did the employers; and 
the American Federation of Labor now faces the National 
Association of Manufacturers. When the union alone was 
organized on a national basis, its power was almost un- 
limited. With the organization of the employers, however, 



420 TEXT-BOOK OF ECONOMICS 

the union finds that it can accomplish more by gaining the 
strength of pubhc opinion on its side than by blindly oppos- 
ing its strength in strikes with combined manufacturers' 
strength in lockouts. It is during the last ten years that 
the National Association of Manufacturers, the Citizens' 
Industrial Alliance, the Citizens' Industrial Association, 
and employers' associations generally have been organized 
and put on a firm basis. The most prominent of these is the 
National Association of Manufacturers, representing most 
of the prominent manufacturing interests of the country. 
In 1907 a fund of a million and a half dollars was agreed 
upon as a requisite amount for the expenditures necessary 
for the next three years in carrying on their campaign of edu- 
cation. They stand opposed to many union practices and 
desire to see an increase in technical education throughout 
the country. The expenditure of a million and a half for 
printing tracts and delivering lectures, and the like bears 
ample testimony to the fact that no association, no matter 
how strong or wealthy, can long succeed if not backed by the 
weight of public opinion. As a result of this recent move- 
ment of organization on the part of the manufacturers, the 
unions have lost some of their former monopoly powers. In 
their contests they, too, are now forced more and more to look 
to the support of public opinion for aid. Both sides to the 
industrial controversy can no longer rely on mere brute 
strength to win out. 

Perhaps in no better way can the line of recent develop- 
ment of unionism be pointed out than by quoting the three 
paragraphs from The New Basis of Civilization, by Pro- 
fessor Patten : — 

"Utilitarian in its motive, and passionately selfish in its 
singleness and intensity of purpose, it [modern industrial 
unionism] has a social and ethical significance that is without 
parallel in the institutions of democracy ; it is the first coa- 
lition of the economic powers of the basal men and the high- 
grade, skilled workers. During the last century labor organ- 



THE TRADE UNION 42 1 

ization could not have been included among the resources 
available for the civilization of crude masses, because it was 
not the chief purpose of the leaders of the early trade union- 
ism to secure the rewards of his work to the common laborer. 
The heavy balance of power lay with the labor aristocracy 
of artisans and craftsmen, the skill of the individual being 
more valued in European industry than the advantages of 
the machine process ; the craftsmen therefore banded against 
the leveling encroachments of the more unpracticed toilers, 
and their trade unions were obstacles that served with other 
forms of class domination to keep the unskilled on a static 
plane. The philosophy of the early leaders, who limited 
membership to skilled groups within a single trade and 
sought to control output by rigorous exclusions, seems com- 
paratively negative in comparison with the positive and 
constructive theories now directing unionism. 

"The men who began the opposite movement in America 
have recognized that the foundation of industrial civilization 
is being built by unskilled hordes, and they seek to retain 
control of the ground already won by enlisting all comers in 
its defense. The unionization of an entire industry and its 
affiliations in other industries gives them the primary ad- 
vantage of numbers. Labor leaders say that the best way 
to lift the structure is to raise the base, and they are willing 
to insert the lever beneath the lowest stratum of labor. The 
man who has joined one of the unions formed within the 
last six years learns that his 'lot is bound with that of the 
whole working class,' and 'that he can no longer advance by 
building a monopoly of labor within his trade.' The lines 
of industrial caste must break in order to give the class 
which has the numerical power free admission into the ranks 
above it. When the unskilled are a majority within the 
union, moreover, the advance must be timed by their in- 
telligence and adaptability. 

" The changes in method which this dominance involves 
are indicated by the remarkable shifting in the imion per- 



422 TEXT-BOOK OF ECONOMICS 

sonnel. The total membership has more than doubled 
since 1 898-1 899; but while the old type of union or skilled 
workers shows a gain of a little more than 50 per cent, the 
newer group, composed of relatively unskilled laborers, has 
had a total growth approximating 300 per cent. ' The 
reasons,' says Mr. William E. Walling, 'are the increasing 
proportion of unskilled workers in the industry, the decreas- 
ing sharpness of definition of the line between the skilled and 
the unskilled trades, and the greater ease with which the 
occupations of the skilled can be learned by the unskilled.' 
Within the last three years the American Federation of 
Labor has marshaled three hundred thousand immigrants 
under lieutenants who drill them to march shoulder to 
shoulder behind the American standard of living. Although 
it is a utilitarian motive that incites the smaller and wiser 
groups to lead the huge weak one, and a selfish reason that 
urges them to unify the crowd lest all be involved in rout, 
there is none the less a spiritual advance. The inchoate and 
stubborn bands arrive first at the meaning of class conscious- 
ness and of its ultimate development into social solidarity; 
then they are given an educative social discipline; next they 
acquire an orderly and obedient mobility; and it is but a 
short step thence to the rights of leisure and of developmental 
recreation." 

From the general discussion in this chapter it becomes 
apparent that though one may firmly believe in the union 
principle, it does not necessarily follow that he must approve 
all its actions. The union is an institution composed of 
men struggling for better conditions of life for themselves 
and families. It is accordingly subject to all the errors of 
which human judgment is capable under such circumstances. 
Unions have come to stay, and few people, including the 
National Association of Manufacturers, if one may judge 
from their public statements, would see the labor union 
abolished, and the good that they have accomplished in the 
line of better working conditions, restrictions of women 
and child labor undone. 



THE TRADE UNION 423 

TOPICS FOR CLASS DISCUSSION 

1. Point out the significance of the attempts to nationalize unions. 

2. Is a union justified from the standpoint of the workers? 

3. If you were a coal operator, would you wish your men to join the 
United Mine Workers of America? 

4. Can any distinction be drawn between the unions which workers 
should belong to and unions which they should not belong to? 

5. Show the value of the union to the public. 

6. Is the union against public policy? 

7. Should the union be compelled by law to incorporate? 

8. Should union activity be restricted to the payment of benefits 
and the education of members? 

9. Should union activity be permitted to interfere with industry? 

10. What is the significance of the entrance of the union into politics? 

11. What would be the ideal outcome of the union movement in 
America? 



CHAPTER LVI 

METHODS OF COOPERATION 

The cooperative movement was started in northern Eng- 
land by a few poor weavers of Rochdale. Each of these 
men advanced a small amount of money and the whole was 
invested in a bag of flour, which was then divided among the 
investors at cost price. By this means retail quantities of 
flour were secured at wholesale prices. 

From this small beginning, with a sack of flour as the 
object of the cooperation, the movement has grown until it 
numbers its cooperative societies by the thousands. In 
memory of its originators the cooperative society having 
the system in charge is called "Rochdale Pioneers." 

As the society was organized in its early form, each mem- 
ber paid in from $5 to $25 as his share of capital in the 
cooperative store. Four times a year each member received 
1-4- per cent on his investment, and each year 2h per cent was 
set aside for educational purposes. The surplus over and 
above these amounts was credited to the members of the 
society, in the proportion of their purchases during the 
preceding three months. 

In this way each member received 5 per cent on the money 
he had invested in the enterprise ; a minimum sum was raised 
for educational purposes, and at the same time a direct 
incentive to purchase was provided by giving the surplus to 
the largest purchasers. As no attempt was made to sell 
goods at a low figure, it was possible for members to share 
in the advantages of the cooperative movement only by 

424 



METHODS OF COOPERATION 425 

purchasing at the cooperative store. The more they pur- 
chased, th€ more surplus they secured. 

In the middle of the nineteenth century the Christian 
socialist movement was organized, and one of the things 
which they laid most emphasis on was cooperation as 
developed in the Rochdale system of cooperative stores. 
The leaders of the Christian socialist movement applied all 
their energy to pushing forward the cooperative movement. 
Owing in a great measure to the help which the Christian 
socialist lent to the movement, it has developed, until to-day 
there is in England a network of wholesale and retail co- 
operative stores which do an annual business of several 
hundred million pounds. The movement has spread well 
over Europe and has become very general in Germany, 
Belgium, Holland, Switzerland, and Italy. Nowhere, how- 
ever, has it assumed such proportions or exercised so great 
an influence as it has in Great Britain. 

The earliest record of cooperation in the United States 
is furnished by the cooperative movement among the New 
England fishermen in 1730. In 1752 the Philadelphia 
Contributorship for the Insurance of Houses from Loss by 
Fire was organized. This voluntary organization was a 
crude beginning of mutual fire insurance. Benjamin Frank- 
lin was the first director of the society. From that time on 
the cooperative movement developed generally in the form of 
insurance societies, building loan associations, cooperative 
stores, cooperative colonies, and other similar associations. 
Certain phases of cooperation have had a very thorough devel- 
opment in the United States. It is probable that cooperative 
credit associations have been more extensively developed here 
than anywhere else, and in no country have so many coopera- 
tive communities been organized. 

In 1845 the first protective union store was organized in 
Boston. A dozen persons with "the faith of God in their 
hearts " purchased a box of soap and a half a box of tea. 
Out of this small beginning grew the New England Protective 



426 TEXT-BOOK OF ECONOMICS 

Union, which had developed in 185 1, 403 divisions, of which 
165 reported aggregate sales for the year of $1,696,000. 
Dissensions crept into the ranks, and by i860 the association 
was practically defunct. 

The next wave of cooperation was dominated by the 
Patrons of Husbandry, an organization formed primarily for 
the benefit of rural districts. In 1875 there were 24,000 
"granges" or local sections of the Patrons of Husbandry, 
with a membership of 764,000. The members of each 
locality, or grange, formed themselves into a purchasing club, 
and in each State an agent made the purchases for all the 
clubs in that State, In one year (1875) the Ohio agency 
saved the members of the granges $240,000 by its whole- 
sale buying. 

The Sovereigns of Industry was a society formed to do for 
the ordinary worker what the Patrons of Husbandry was 
doing for the farmers. This movement grew to great pro- 
portions, but like the Patrons of Husbandry suffered seriously 
from a lack of business system. Repeated attempts were 
made to have the Rochdale System established by all of the 
local centers. These efforts were in most cases unsuccessful. 

In the '8o's both the Patrons of Husbandry and the Sov- 
ereigns of Industry were on the wane, and the Knights of 
Labor took the field, declaring for the "establishment of 
cooperative institutions, productive and distributive." Little 
was accomplished of a definite character, and the order de- 
clined without having greatly advanced the cause of co- 
operation. 

This represents the last organized movement toward 
consumers' cooperation. In the field of producers' co- 
operation, in 1876, the Patrons of Industry had thirty manu- 
facturing associations, whose capital ranged from $200,000 to 
$500,000; 16 gristmills, one of which produced 100 barrels 
of flour a day, 3 tanneries, and 6 smithies. 

The Knights of Labor attempted to organize on a large 
scale boot and shoe companies, painters' and decorators' 



METHODS OF COOPERATION 427 

associations, clothing companies, tobacco factories, mining 
associations, and others. Nearly all these attempts failed. 

The most successful form of producers' cooperation at 
present in existence is the cooperation in creameries. All 
through the agricultural districts creameries exist, run ad- 
vantageously on a cooperative basis. With this exception, 
producers' cooperation in the United States is practically 
dead. 

There are certain advantages and disadvantages of co- 
operation which have been brought out by the various efforts 
to establish cooperating societies. In consumers' coopera- 
tion the following are the chief advantages : — 

1. The small trader is eliminated and thus a very important 
item in profits is deducted from the price of the commod- 
ities. By wholesale buying the cooperating member of the 
group either gets goods at reduced prices, or else shares in a 
surplus at the end of the year. 

2. The cooperative store is guaranteed a loyal con- 
stituency because only through it can the cooperator secure 
the advantages of cooperation in the form of divided surplus. 
It is therefore to the interest of the cooperating members to 
patronize the system of which they are a part. With a 
guaranteed constituency the movement, if efficiently managed, 
is practically sure of success. 

3. The democracy underlying the cooperation idea is so 
manifest that an inferior quality of service will be tolerated in 
view of the democratic principles involved. Men are willing 
to put up with a great many inconveniences and annoyances 
in "our store" that would not be tolerated in the store of 
Jones or Smith. 

4. Through a knowledge of the customers' needs, and 
through saving of advertising, the expenses of the carrying on 
of the business are considerably reduced. This is particularly 
true where the management of the enterprise is honest and 
efficient and therefore prepared to avail itself of the ad- 
vantages offered. 



428 TEXT-BOOK OF ECONOMICS 

5. The stores are apt to be more serviceable in many ways 
because they are being run for the advantage of the com- 
munity and not for profits. The manager is, of course, 
attempting to produce a large surplus for his constituency, 
yet there is not the same attitude that there is in a privately 
managed enterprise. 

In view of the advantages to be derived from the customers' 
cooperation, it seems surprising that the movement has not 
developed more fully in the United States. There are four 
good reasons for this lack of development : first, the country 
is so large and the interests of the various sections so diverse 
that it has not been possible to develop such a general move- 
ment as that in Great Britain. In the second place, in the 
modern American city retail stores have been organized on 
a large basis, and a great many of the petty annoyances and 
petty profits of the old retail system have been eliminated. 
The grocery companies managing a score of grocery stores 
throughout a city, or the department stores catering to many 
thousands of individuals daily, have put retail business on a 
more scientific basis and have reduced prices to such a low 
figure that the cooperative stores would have difficulty in 
competing. In the third place, in the retail business in 
America private business has proved to have advantages in 
economy far above those possessed in the cooperative 
business. Fourth, producers are strongly organized, and in 
all probability would be able to crush out cooperative under- 
takings by a refusal to sell to them. 

Nowhere has producers' cooperation succeeded so signally 
as consumers' cooperation; and in general producers' co- 
operation has proved more or less of a failure. For this 
there are two reasons : — 

I. The productive enterprise is much more difficult to 
manage and requires much more initiative and business 
ability than cooperation in consumption. The reason for 
this is perfectly obvious. In the case of a store the constit- 
uency is located in the immediate neighborhood, and their 



METHODS OF COOPERATION 429 

loyalty can be maintained by dividing up the surplus in 
proportion to purchases. In the case of cooperation in 
production, however, under modern business conditions, the 
producer must produce not for any given locality, but for the 
State or for the nation at large. Under these circumstances 
it is impossible to keep a homogeneous, loyal constituency. 
One of the great bulwarks which supports consumers' co- 
operation is thus eliminated from any system of producers' 
cooperation. 

2. The other reason for the failure of producers' coopera- 
tion is the difficulty encountered in securing capital and 
skilled managerial ability. The cooperators expect to 
secure for a low figure a high-priced man, and they uniformly 
fail because private industry invariably bids in, at a high 
figure, the able men, leaving the less able ones for the lower- 
paying cooperative enterprises. 

As the movement has developed, the field for cooperative 
production has narrowed down until it embraces practically 
nothing except the few rapidly decreasing industries where 
workingmen are all on the same basis, where little outlay is 
necessary for tools, where the business is operated to supply 
a constituency limited as to size and area, and where the 
factory system and division of labor cannot well be installed. 
In industries where such things as candy, cigars, and other 
like goods are manufactured, a certain amount of success has 
attended cooperation in production. Otherwhere it has 
proved a dismal failure in this country. 

TOPICS FOR CLASS DISCUSSION 

1. What is consumers' cooperation? 

2. What are the reasons for its success in England? 

3. What are the reasons for its failure in the United States? 

4. What is producers' cooperation? 

5. Why has producers' cooperation generally failed? 

6. What is the relative importance of producers' and consumers' 
cooperation ? 



CHAPTER LVII 

THE RESULTS OF COOPERATION 

Cooperation refers to the voluntary association of persons 
in joint production, consumption, distribution, or purchase. 

At the outset cooperation must be distinguished from 
socialism and from communism. Socialism involves State 
ownership. Cooperation is developed through individual 
initiative, and is wholly independent of the State. Commu- 
nism, on the other hand, means cooperation in production, 
consumption, and distribution. Communism applies the 
theory of cooperation to all forms of economic activity, 
whereas the average advocate of cooperation takes up only 
one or at most two forms of such activity. Those who favor 
cooperation believe that individuals should associate to 
accomplish one or two things in common, while the com- 
munists hold that not one alone of the factors involved in 
maintaining economic society, but all of them, should be 
developed in common. 

It will thus be seen that cooperation is neither socialism 
on the one hand, nor communism, on the other. It occupies 
a middle ground, which might be described as fragmentary 
communism. At the same time cooperation must be clearly 
distinguished from profit sharing. Profit sharing, which will 
be taken up in a later section, is a movement initiated by the 
employer. Through this movement the employer gives to 
his employees a portion of what they create. Cooperation, 
on the other hand, originates with the worker, and the purpose 
of cooperation is to secure for the worker all that he has 
created. In the case of profit sharing, the employer does 

430 



THE RESULTS OF COOPERATION 431 

something for his employees. In the case of cooperation, the 
employees do something for themselves. 

There are three kinds of cooperation : First, cooperative 
banking, through cooperative banks, building societies, 
assurance societies, and the like. This is a very under- 
developed form of cooperation, and yet it is everywhere prev- 
alent, notably in lodges, fraternal societies, and building 
societies. The chief purpose of this cooperation is the 
securing of certain results, such as death benefits and sick 
benefits, which enter only slightly into the activities of the 
ordinary man. While the development along these lines has 
been extensive, it is not vital. 

The second kind of cooperation, which has never been 
developed extensively in the United States, but which has 
been put on a firmly established basis in many European 
countries, is cooperation in consumption. The principal 
type of this cooperation is the cooperative store, which was 
described in the preceding chapter. 

The third form of cooperation is cooperation in produc- 
tion, — either in agriculture, manufacturing, or some other 
mode of creating utilities in economic goods. In coopera- 
tive production the cooperating parties furnish their own 
capital, and the results of the sales of goods produced are 
divided among the participants in the cooperative move- 
ment. 

It has already been pointed out that cooperation is an 
essentially democratic thing, while profit sharing is essentially 
paternalistic. At the beginning of this chapter an attempt 
was made to distinguish cooperation from socialism and 
communism. Nevertheless, they have certain things in 
common. If carried to its logical conclusion, and applied to 
the leading phases of industrial activity, cooperation would 
result in the overthrow of the present wage system. The 
essential thought underlying the wage system is that each 
worker bargains to sell his labor for an amount believed by 
him and by his employer to be a fair compensation for the 



432 TEXT-BOOK OF ECONOMICS 

work done. Followed out and generally applied to industry, 
cooperation would supersede wage payment. Men would 
be compensated, not in accordance with a wage contract, but 
in proportion to the amount of goods produced by society. 
Those who advocate cooperation as a reform for present 
industrial difificulties do not conceive of the movement in this 
way. They regard it as a thing apart from socialism or 
communism, yet its essential, underlying principles contain 
something common to both of these movements. Whjle the 
ordinary person cooperating in a cooperative store or build- 
ing association does not look upon the matter in that light, 
some of the more advanced promoters of cooperative enter- 
prises regard the cooperative commonwealth as the ideal 
end of their movement. In such a Utopian commonwealth 
all the industrial activities would be carried on cooperatively, 
and the scheme would differ little from the ideal of the average 
communist. 

This system of cooperation would give to each of those 
interested in the project a greater amount of freedom of action 
and a certain amount of discretionary power as to what 
things should be done by the enterprise. In contrast with 
such a system, where men share on a democratic basis, 
systems of profit sharing are usually employed for the pur- 
pose of attaching the workers to the employer and preventing 
them from taking any action detrimental to his welfare. 
Through cooperation, all of the advantages derived will go 
to the workers. Through profit sharing, only a small per- 
centage reaches them. 

From this statement it will readily be seen that if coopera- 
tion is to be developed scientifically, the following essentials 
must be present : First, all of the profits of the enterprise 
must be shared by those engaging in it. This is opposed to 
profit sharing, in which only a portion of the profits are shared 
among those engaging in the enterprise. Second, autocratic 
power to dictate the conditions of industry must be re- 
moved from the hands of a few. Under the present sys- 



THE RESULTS OF COOPERATION 433 

tern a small group of men decide industrial policies. The 
idea of the cooperators is that the majority, and not the 
minority, should decide the more important questions relat- 
ing to the business policy of the establishment with which 
they are connected. Advocates of this thought hold that the 
average man is just as interested in industrial questions as 
he is in political questions. Indeed, the industrial questions 
are, if anything, the more fundamental. Every one should 
therefore have a voice in disposing of these questions. Third, 
by thus placing industry on a democratic basis it would give 
the worker a real say in the method of carrying on the busi- 
ness, and thus give him an interest in its development and 
success that is not supplied in any profit-sharing system. 

The advocates of cooperation have regarded it as a sure 
remedy for the social problems which so many are striving 
to solve. While the system has nowhere been given an 
extensive trial, it is fair to say that, looked upon as an adequate 
remedy for our social ills, cooperation has proved a failure. 
With the exception of cooperation in such enterprises as 
building loan associations, assurance societies, lodges, and 
similar societies, and the considerable success attending the 
consumers' cooperation in England and some parts of the 
Continent, the cooperative system has furnished very little 
ground for hope that it will prove an immediate relief or an 
ultimate remedy for the many ills which beset us. 

Consumers' cooperation and cooperation in banking or 
financial enterprises have succeeded in certain instances ; but 
their success has aided only the small percentage of any group 
who were members of the societies, and even then, with the 
exception of some cooperative stores, it has not aided them 
in any of the more vital affairs of life. 

Producers' cooperation has uniformly failed, except in 
some unimportant industries where the competition of pri- 
vate capital was not active. If cooperation is to furnish an 
adequate remedy, it must succeed in production, and there, 
more signally than in any other place, it has failed. 



434 TEXT-BOOK OF ECONOMICS 

To be of value in solving present social and industrial 
problems, cooperation must be in a position to regulate the 
conditions under which workers work and the share of the 
product of industry which each worker receives. Con- 
sumers' cooperation can provide only for the welfare of that 
portion of the working group which comes into direct contact 
with its stores and other enterprises. For the masses of the 
workers it can do nothing. 

Could producers' cooperation be made effective, it would 
be able to meet both the problem of working conditions and 
the problem of prices ; but producers' cooperation has never 
proved a big success, owing to the difficulty of securing the 
requisite ability in the management of such enterprises. 

The whole problem might be summed up by saying that 
none of the forms of cooperation which have developed suc- 
cessfully can to any extent regulate the prices of commodities 
to the consumers nor the wages of the workers. Hence from 
the standpoint of a remedy for our present system of unequal 
distribution, cooperation is essentially weak. Consumers' 
cooperation has met with some success, but producers' 
cooperation, the more important of the two, has succeeded 
on the side tracks rather than on the main line of industry. 
Those who are seeking a remedy for social ills must look else- 
where than to cooperation to provide one. 

TOPICS FOR CLASS DISCUSSION 

1. What is the underlying principle of cooperation? 

2. What are the chief advantages of cooperation? 

3. State the leading objection to cooperation. 

4. Is cooperation practicable? Why or why not? 

5. What steps would be necessary before cooperation could be gen- 
erally established in the United States? 

6. Is cooperation beneficial to the average citizen? 

7. What effect would cooperation have on the entrepreneur? 

8. What effect would cooperation have on the manager and the boss? 

9. What effect would cooperation have on the wage worker? 
10. What relation does cooperation bear to democracy? 



CHAPTER LVIII 

METHODS OF PROFIT SHARING 

The system of profit sharing is one which guarantees to the 
workers a specified share of the profits of the business in 
addition to the regular wages. It is necessary to distinguish 
profit sharing from cooperation and gain sharing. In co- 
operation all enter on an equal footing and divide the pro- 
ceeds. The movement is voluntary and democratic. In 
gain sharing the wages depend upon the product. This 
system exists in some of the fishing ventures. Profit sharing 
presupposes the payment of wages, and shares only the net 
profits in a certain predetermined proportion. 

There are several methods of profit sharing, of which the 
most prominent are : — 

1. A system of deferred participation in profits. Under 
this system a percentage of the profits is each year credited 
either to the entire body of employees as a unit or to specific 
employees. In the cases where it is credited to the employees 
as a unit, it takes the form of a provident fund. In order to 
share in this fund, the employee must be sick, injured, or 
subject to some other distressed condition which makes the 
payment of benefits desirable. In case the profits are 
credited to the employees individually, they receive their 
share of the profits either when they attain a specified age, 
remain a specified time in the establishment, or suffer an 
unusual pressure from sickness or accident. This system 
has been most extensively developed in France. In English- 
speaking countries it has met with little success. 

2. A second method of profit sharing is that of stock 
ownership by employees. 

435 



436 TEXT-BOOK OF ECONOMICS 

In cases where the employee buys the stock, paying the 
full market price for it, there is evidently no profit sharing 
in its true sense, though such a system is often described as 
profit sharing. The employee is in no different relation to the 
company than is the average investor. In cases like that of 
the United States Steel Corporation, however, the problem 
is a different one. Here the company sold stock to the 
employees at a special price. While this is an approach to 
profit sharing, it is not profit sharing in the true sense of the 
word. It is only where the stock is given outright to the 
employee that it can be fairly said that the business is on a 
profit-sharing basis. 

3. The method of profit sharing most generally adopted 
in England and the United States is the cash bonus. The 
portion of the profits to be divided is paid to the employees in 
proportion to their wages or salaries and the number of hours' 
work for the year. 

The system of profit sharing was started in France by a 
house painter and decorator named Edne Jean Leclaire. 
He was born in 1801, near Paris, the son of a poor shoemaker. 
He was apprenticed to a house painter, and at the age of 
twenty-six he started in business for himself. On his first 
job he made a handsome profit, although he paid his men five 
francs a day instead of the usual four francs. 

Leclaire formed a mutual aid society for his men and desired 
to make some provision for them in their old age. There 
was one great drawback, however ; the business did not pro- 
duce a sufficiently large surplus to enable him to do much 
for the men. 

In 1885 a friend told Leclaire that the only solution was 
through a system which would pay a portion of the profits 
directly to the men. Leclaire refused to believe this. In the 
meantime his business had grown tremendously, as his men 
had a reputation for sobriety and good workmanship. In 
1840 the thought came to Leclaire that while the present 
business could provide little surplus for the men, it might 



METHODS OF PROFIT SHARING 437 

be possible by an industrial partnership "to create, by the 
common effort, in view of the division of profit, and with the 
energy so called forth," a further amount of product which 
would not only increase the bonus to the workmen, but would 
increase the profits of the employer as well. 

In 1 843, after careful preparation, Leclaire tried the scheme. 
His workmen were at first suspicious, but when in February 
forty-four of them received 12,266 francs, then suspicion 
vanished, and they took up the work with a will. 

The " Maison Leclaire " is now a great industrial partner- 
ship. The mutual aid society of Leclaire has become a 
partner in the business and holds half of the capital of 400,000 
francs. The other half is held by two partners, chosen by 
the men. The workmen receive unusually high wages and 
sickness and accident benefits. 

The system thus started in the Maison Leclaire has been 
applied in a modified form to many other forms of business. 
Perhaps the most interesting example of profit sharing is 
furnished by the Bon Marche, one of the largest retail estab- 
lishments in the world. In 1876 the system was inaugurated 
by a provident fund, which was to be supported out of the net 
profits. The amount of the payment is fixed by custom, not 
by agreement. 

After an employee has served with the firm for five con- 
secutive years, an account is opened for him or her in the 
provident fund, and each year a portion of the net profits is 
credited to each employee in proportion to the amount of 
wages received during the year. On these credits interest is 
computed at 4 per cent. Any male employee who reaches 
the age of sixty or who has completed twenty years of uninter- 
rupted service, and any female who is fifty years of age or has 
completed fifteen years of uninterrupted service, is entitled 
to draw out the full amount in the provident fund. In case 
of death, the amount standing to the credit of the employee is 
at once paid to the relatives. 

In 1877, at the death of the founder of the Bon Marche, his 



438 TEXT-BOOK OF ECONOMICS 

widow took steps to admit into partnership with herself 
ninety-six heads of departments, each of whom invested a 
sum of money in the business. 

So much for profit sharing in France. To Leclaire be- 
longs the distinction "of having done more than any other 
one man to work out the details and demonstrate the prac- 
tical merits of industrial partnership." He established the 
first really successful profit-sharing establishment. 

In England profit sharing was tried at the Whitwood 
Collieries, Yorkshire, from 1865 to 1875. During this 
period the system was heralded as furnishing "the stand- 
ard examples of just relations of master and man, to which 
every writer on labor felt bound to devote attention." 

The Whitwood experiment proved a failure, owing to the 
fluctuations of demands for a price of coal and to trade- 
union activity. The failure gave profit sharing a setback 
in England from which it did not recover for a generation. 

TOPICS FOR CLASS DISCUSSION 

1. What different methods are there by which profit sharing may 
be carried on? 

2. Which of these is the most valuable? 

3. What is the relation between profit sharing and socialism? 

4. Distinguish profit sharing from cooperation. 



CHAPTER LIX 

THE OUTLOOK FOR PROFIT SHARING 

The previous chapter has dealt with the general principles 
of profit sharing and its success abroad. After all, however, 
the important question for the American student is: "What 
has been done and what can be done in America?" 

In 1869 the A. S. Cameron Company of Jersey City 
began a profit-sharing scheme which lasted until the death 
of Mr. Cameron, years later. On the whole, this attempt 
was fairly successful. So much cannot be said for the 
experiment of the Brewster Carriage Company of New 
York, which inaugurated a profit-sharing plan in 1870, and 
ended it in 1872, when the workmen struck for an eight- 
hour day. 

There is only one instance of a profit-sharing scheme 
surviving for any considerable length of time in the United 
States. That is the Peace Dale Manufacturing Company, 
whose successful organization of profit sharing dates from 
1878. The scheme is not a full-fledged system of profit 
sharing. No set proportion of net profits is paid, nor is 
there any obligation on the part of the firm to pay any bonus. 
During some years as much as 5 per cent on wages has been 
paid. In other years nothing has been paid, as the busi- 
ness conditions did not seem to warrant it. The company 
states that "we cannot say that the scheme has had any 
noticeable effect as yet upon the help, their efficiency or 
interest." In contrast with the experience of the Peace 
Dale experiment, Mr. Samuel Cabot, a manufacturing 
chemist who has tried profit sharing for about twenty years 

439 



440 TEXT-BOOK OF ECONOMICS 

in Boston, says: "My observation has convinced me that 
the spirit of my employees is superior to that of the average, 
and that they are more contented and willing by far than 
in similar establishments. In fact, I am satisfied that this 
bargain has been a good one for both parties to it, and that 
the extra money laid out has been vi^ell and profitably in- 
vested." 

The N. O. Nelson Company, manufacturers of plumbing 
goods, pays its employees a bonus in stock. The original 
plan gave to the employees a cash bonus, but the firm became 
convinced that the increased wages due to the cash bonus 
"would mean in most cases a rise in the scale of living, 
which would have to be forcibly reduced" in the absence of 
such a plan at a future time. As the main object was to 
provide for the future, a system of stock payments was 
substituted for cash payments. On the whole, the Ameri- 
can experiments have been on a small scale, few in number, 
and in only a few cases adopting a true profit-sharing system. 

In their Labor Problems Adams and Sumner have the 
following to say regarding profit sharing: "Profit sharing, 
though a palliative applicable with good results in cer- 
tain industries and under certain circumstances, holds forth 
no promise of an ultimate solution of the labor prob- 
lem. In the first place, it frequently injures and antagonizes 
the concerted efforts of workingmen to better their own 
conditions of life through labor organizations. Moreover, 
profit sharing has no sufficient economic foundation and is, 
consequently, incapable of wide application. Thirdly, the 
principle itself is open to serious objections. Nevertheless, 
it has attained notable results in numerous instances, and 
the causes of its success and failure are certainly worthy of 
the most careful examination." 

Looking at the question of profit sharing as it is applied 
in the United States, what are the chief reasons for its failure 
to show results? The system of profit sharing through 
deferred payments has certain very evident disadvantages 



THE OUTLOOK FOR PROFIT SHARING 



441 



from the American standpoint. In the first place, the 
thought underlying the system is that a given employee will 
remain for a long period of time under one employer. This 
is distinctly not the case in modern American industry. 
The group which a noted economist has called the "peri- 
patetics of industry" is assuming a more and more promi- 
nent position in American industry. This group moves 
frequently from one place of employment to another, and 
would be unable to see the advantage of the deferred pay- 
ment system which would mean nothing to them. 

Again, the system works best in trades where workmen 
are highly skilled and intelligent. In the average American 
industry a common labor group is coming more and more 
rapidly to the front. This group works with its hands and 
neglects its head. The deferred-payment system would 
not appeal strongly to its members. At best, business is 
uncertain, and the average employee does not relish the 
idea of working on the deferred-payment plan for a firm 
which may become insolvent at any time, and thus remove 
all chance of a share in the fund of profits. The system of 
deferred payment has met with a fair degree of success in 
France with her stable industries, but the reasons for its 
failure to gain headway in the United States are rather 
evident. 

The system of sharing profits with employees by giving 
them shares in the company or by requiring them to be 
owners of the company's stock before they are allowed to 
share in the profits has never met with great favor. The 
latter system particularly is well-nigh out of question for 
the lower grade of wage worker who has a family dependent 
on him. He needs every penny, and it is difiicult for him 
to get ahead sufficiently to purchase the stock of the company. 

It is difficult to operate a system of giving stock to em- 
ployees that will be fair to all. It must be based on length 
of service to some extent, and therefore makes little appeal 
to the "peripatetics of industry." 



442 TEXT-BOOK OF ECONOMICS 

The purpose of giving stock to employees or for requiring 
them to purchase stock in order to share in the profits, is 
evidently to give the various employees so strong an interest 
in the business that they will do all in their power to further 
its productiveness and general welfare. An employee who 
holds stock is attached to the company in a way that cur- 
tails his freedom of action. This system has not met with 
great favor in the United States. 

The system of paying to an employee his or her share in 
the form of cash, appeals more strongly than either of the 
other two, and if any system is to succeed in the United 
States it will be one based on a cash bonus basis. 

Profit sharing involves little departure from the present 
system of industrial remuneration. It will be remembered 
that cooperation, carried to its logical conclusion, involves 
the complete overthrow of the wage system. Profit sharing 
retains all of the features of the present wage system and 
adds on an extra feature — a sharing of the net profits. It 
will, therefore, be seen that profit sharing does not involve 
any such radical changes as does cooperation, or most of 
the other remedies proposed for industrial ills. 

TOPICS FOR CLASS DISCUSSION 

1. Where has profit sharing succeeded most completely? 

2. What has been the success of profit sharing in the United States? 

3. What is the attitude of the average employer toward profit 
sharing? 

4. What is the attitude of the average worker toward profit sharing? 

5. What attitude does the public take toward profit sharing? 

6. What is the object of profit sharing? 

7. Who benefits most by profit sharing? 

8. Does profit sharing lay an extra burden on any one? 

9. Has profit sharing accomplished what it aimed to accomplish? 
10. What is the outlook for profit sharing in the United States? 



BOOK X 

CHAPTER LX 

INTRODUCTION TO ECONOMIC PROGRAMMES 

There was a time in the history of political economy 
when to write on economic programmes would have been 
viewed not only as fantastic, but as absolute heresy. The 
fathers of our science were imbued with the belief in un- 
alterable economic laws. They traced, or imagined they 
found analogies between the laws of physics and economics. 
To their theories they gave the same broad application and 
immutability that the physicist applies to the law of gravita- 
tion. They handed down their opinions in the terms of 
most far-reaching law. Of such were their statements of 
the "Iron Law of Wages," The Wage Fund Theory, 
Ricardo's Theory of Rent, The Law of Diminishing Re- 
turns, The Doctrine of Free Trade, and the Law of Popu- 
lation as stated by Malthus. 

To them it was preposterous to think of trying to over- 
come the operation of deep fundamental economic laws. 
They were natural laws. To place artificial, man-made 
law in the same category showed lack of wisdom. Laws of 
nature are automatic, and to stop their operation was deemed 
as futile as trying to stop the flow of the Thames. 

Accordingly, we find England in the eighteenth, and early 
in the nineteenth century, repealing, one after another, all 
laws which were held to impede the free play of economic 
principles. Granting of bounties, restriction of foreign 
trade, and statutes whose ends were the regulation of the 
relation between employer and employed, were repealed, and 

443 



444 TEXT-BOOK OF ECONOMICS 

the age of laissez faire was ushered in. The government 
put into practice what for a generation the economists had 
been teaching and advocating — the abolition of all re- 
straints on the automatic operation of economic laws. Under 
this regime it was held not only wise but necessary that 
each person be allowed to pursue his own interest uninter- 
fered with by the government, or any other agent or agency 
so long as he did not violate the king's peace. 

With the science of Economics upholding such views, it is 
easy to comprehend why the earlier books on the subject 
omitted all reference to economic programmes. There were 
none needed. Economic law was supreme. A programme, 
on the other hand, is a man-made device, and implies action. 
It is positive, not negative, as was the laissez faire view of 
government. 

A fair trial was given to this let-alone policy, and things 
happened which not even the belief in immutable economic 
laws could countenance. Conditions of life became in- 
tolerable and inhuman for millions, as the following from 
Cheyney's Industrial and Social History of England 
indicates : — 

" Children began their life in the coal mines at five, six, 
or seven years of age. Girls and women worked like boys 
and men, they were less than half clothed, and worked along- 
side of men who were stark naked. They worked from 
twelve to fourteen working hours in the twenty-four, and 
these were often at night. Little girls of six or eight years 
of age made ten to twelve trips a day up steep ladders to 
the surface, carrying half a hundred weight of coal in wooden 
buckets oi; their backs at each journey. Young women ap- 
peared before the commissioners, when summoned from 
their work, dressed merely in a pair of trousers, dripping 
wet from the water of the mine, and already weary with 
the labor of a day scarcely more than begun. A common 
form of labor consisted in drawing on hands and knees 
over the inequalities of a passageway not more than two 



INTRODUCTION TO ECONOMIC PROGRAMMES 



445 



feet or twenty-eight inches high, a car or tub filled with 
three or four hundredweight of coal, attached by a chain 
and hook to a leather band around the waist." 

Contrary to the theory of laissez faire, one law after an- 
other was passed in England looking to the welfare of her 
workers and the future of the race. The theory of laissez 
faire died a natural death. It had been tried and found 
wanting. Since then England has passed measure after 
measure to meet the various problems as they arise. 

When the theory of laissez faire dominated men's minds, 
there was little doubt as to the programme of action. With 
such a theory of government, public opinion must inevi- 
tably be agreed as to the line of State action. When, how- 
ever, the laissez faire theory was once for all overthrown, 
unanimity of opinion could no longer obtain. In place of 
the simple policy of letting each man look after his own 
interests, there are in this country at least five distinct lines 
of reform which are presenting their respective claims for 
the thoughtful consideration of the American people. To- 
day people have not the common basis of agreement that 
the laissez faire theory afforded. As a result, in place of 
one programme, we now have five. 

Great as has been our material prosperity, one cannot 
fail to realize that we have far from attained an ideal civili- 
zation or anything as good as we have a right to expect. 
Poverty, disease, and crime are still dread realities. Ques- 
tions of labor and capital loom up demanding prompt and 
thoughtful consideration. Corporation control, tariff re- 
vision, and railroad discriminations are but a fev/ of the 
momentous problems still awaiting our solution. To the 
discussion of the remedies for many of these evils, the re- 
maining chapters of this book will be devoted. The most 
important programmes now generally advocated in this coun- 
try gfoup themselves under the five following heads, which 
will be discussed in the order named : the programme of the 
"Square Deal," the programme of Government Regulation, 



446 TEXT-BOOK OF ECONOMICS 

the programme of the Smgle Taxer, the programme of the 
Socialist, and the programme of the Social Worker. 

TOPICS FOR CLASS DISCUSSION 

1. What is a Programme? 

2. What was the theory of laissez fairef 

3. What was Mercantilism? 



CHAPTER LXI 

THE PROGRAMME OF THE "SQUARE DEAL" 

The first programme has as its chief spokesman the Presi- 
dent of the United States. Mr. Roosevelt has popularized 
the expression "a square deal" to such a degree that mil- 
lions of Americans now seek to solve all our problems in 
terms of " a square deal. " The phrase crystallizes a popu- 
lar idea in a remarkable manner. Because of its popularity, 
if for no other reason, the programme of the "square deal" 
deserves thoughtful consideration. 

The two following quotations from Mr. Roosevelt give 
an excellent word picture of the course advocated by those 
who believe in the "square deal." The one, "All my life 
I have been striking at evils — here, there; wherever they 
have shown a head to hit, there I have struck and with all 
my might." The other, "I know what I want to do now; 
and I know what I'd like to do next; but after that, I 
don't know." Such a programme is that of a man of action 
influenced by the ideal of common honesty rather than that 
of a constructive philosopher or of a thoughtful student of 
economic problems. For evident reasons it is a popular 
attitude and one which cannot be ignored by those who 
would read aright the signs of the times. 

The "square deal" programme judges every case on its 
own merits, and acts with an eye on the moral issue in- 
volved. This is clearly illustrated by the attitude of the 
administration toward the railroads. Of all abuses con- 
nected with transportation, that of discrimination must first 
be checked. The government should treat all alike, rich or 

447 



448 TEXT-BOOK OF ECONOMICS 

poor, high or low, and so should its agent, the railroad. 
The interests of the small shipper must be as carefully safe- 
guarded as those of the big corporation. It is the function 
of the government to see that all secure a "square deal." 
Again, there must be no discrimination by the railroads in 
favor of one locality at the expense of another. All must 
be treated alike. The traffic between the great west and 
the eastern seaboard cities must be so apportioned that 
the "square deal" prevails among cities and sections of the 
country as it should among individuals. 

Again, this attitude is plainly seen in the tariff question. 
Wherever the tariff wall is high enough to enable a mo- 
nopoly profit, then it should be leveled to just that point 
where all are put on an equal footing. The chief considera- 
tion should be justice, a "square deal" to the consumer, 
as well as to the purchaser. 

The "square deal" programme endeavors to be non-parti- 
san in disputes between labor and capital. It believes that it 
is neither a crime to be rich nor a virtue to be poor. Nor 
does it believe that the fact of being either a capitalist or a 
laborer guarantees of itself that one is right. In the words 
of Mr. Taft, a prominent follower of this programme, — " The 
labor unions are here, and they are here, like the corpora- 
tion, to stay. . . . And they are needed both by labor and 
by the rest of us to offset the combinations of capital. They 
will clash, and when they clash the government must keep 
order and see fair play." It soon becomes apparent to 
what degree the follower of the "square deal" believes in 
the wisdom of the courts or other semi-judicial bodies as 
an Interstate Commerce Commission. It is with them not 
so much getting a law or series of laws passed, but rather 
seeing that existing laws are executed without discrimina- 
tion. In a sense, he says, let every one look out for his 
interests as best he can. In all matters, he believes in a 
system of competition, for in competition he sees the natural 
method of rewarding the industrious and brave, and of 



THE PROGRAMME OF THE "SQUARE DEAL" 449 

permitting the slothful and cowardly to feel the just penalty 
of their acts. But in order that competition shall work 
out ideally, he insists that men living under a competitive 
system shall play according to the rules of the game. With 
the "square dealer" the chief function of the government 
is to see that the cards are not stacked and the dice not 
loaded. That it should play the game is foreign to his 
thought. 

In order to realize this ideal in its broadest application, 
it is part of this programme to educate public opinion to the 
concept of "smokeless sin" and the needs of a new stand- 
ard of morality which will not discriminate between the 
common thief and the juggler of the stock market. It has 
been only recently in our economic history that we have 
gone over to the impersonal corporation way of doing busi- 
ness. Under the earlier industrial regime, many of the 
present important questions of business morahty were un- 
heard of. Our honesty was built on a personal, individual 
basis. We ostracized the man who stole a loaf of bread, or 
the one who caused the death of another. Under our 
present system one may rob people of thousands of dollars 
through franchise grabbing and stock watering, or one may 
cause the death of many innocent victims by neglecting to 
provide sanitary tenement houses, or proper fire escapes for 
his factory, and still escape public disapproval. Our old 
morality knew how to deal with the old-time offender, and 
lost no time in doing so. As yet, we have not learned how 
to cope with the "gentleman" thief made possible by that 
legal fiction, the corporation. 

The programme for arousing public opinion on these mat- 
ters must, of course, be largely educational. The people must 
get a better perspective of the real issues involved. But 
first they must have light. Therefore, the "square dealer" 
is a strong believer in publicity. Turn on the light. If 
there is crookedness or underhand dealings let the people 
see, and then let them judge; but first let them see. The 



450 TEXT-BOOK OF ECONOMICS 

adherents of this programme have faith in the common people 
and their sense of honor and honesty. With this behef 
they advocate any method which will lay the facts before 
the public. Thousands of persons of the middle class 
annually lose their earnings and small investments because 
those "on the inside " of the stock market have the knowledge 
of conditions and can manipulate the market while those 
on the outside are in darkness and ignorance. Too few 
corporations issue financial statements of such a nature that 
the investing public can profit by them. This is a state of 
affairs that believers in the "square deal" would like to see 
prohibited. A compulsory uniform system of issuing peri- 
odic financial statements would largely prevent this evil. 
Proper regulation of capitalization, much as the system now 
carried on in Massachusetts, would eliminate much, if not 
all, of the present practice of stock watering. 

Usually, advocates of this programme, and many others 
for that matter, believe that this desired publicity and uni- 
formity cannot be attained if it is left to the action of forty- 
six different legislatures. Naturally the logical outcome is 
an enlargement of federal functions. This has been the 
evolution in railroad regulation. State control having failed, 
federal regulation was invoked. From a confusing and 
non-uniform system of accounts, the last amendment of the 
Interstate Commerce Act has brought order out of chaos 
and given to the country uniform booking of all railroads 
doing an interstate business. 

There is still another phase of the "square deal" which 
is worthy of mention, and that is its interest in the future 
generations. As at any time each should deal squarely 
with his neighbor, so one generation should deal squarely 
with the next. To exploit children to-day is to deprive 
the next generation of the full quota of efficient men to 
which it is entitled. The child of to-day is the citizen of 
to-morrow. The "square deal" programme accordingly 
stands for a restriction of all child labor. 



THE PROGRAMME OF THE "SQUARE DEAL" 451 

Likewise those to-day using forests and other natural 
resources have a duty which they should discharge toward 
those using them to-morrow. It is another illustration of 
the principle of the "square deal" existing in the dealings 
of one generation with another. The followers of this 
programme strongly urge the conservation of our national 
resources as a sacred duty toward the future. 

Having now discussed the underlying thought in a "square 
deal" policy, and reviewed in outline the embodiment of 
this principle in such programmes as railroad regulation, tariff 
reform, corporation control, and conservation of resources, 
we are now ready to discuss our second plan of economic 
reform. It is more than probable that the programme here 
under discussion is now at the height of its popularity, and 
that from now on we shall hear more and more of the pro- 
gramme of Government Regulation, the subject of our next 
chapter. 

TOPICS FOR CLASS DISCUSSION 

1. On which branch of the government does this programme 
throw the most emphasis? 

2. Why is this programme such a popular one? 

3. Why has there been a steady enlargement of federal functions 
in this country? 



CHAPTER LXII 

THE PROGRAMME OF GOVERNMENT REGULATION 

This programme is the kind that both political parties of 
to-day are advocating. It is similar to the "square deal" 
programme in that it accepts in the main the present organi- 
zation of industry. It believes that a thorough-going compet- 
itive system is the only means of securing justice to all and 
that it is the only safe basis for future progress. On the other 
hand, it is unlike the programme of the " square deal," in that 
its policies are not founded solely on a popular appeal to 
common honesty and fair play, but are based upon a knowl- 
edge of economic laws. 

For this reason it is necessary to digress at this point to 
speak of the productivity theory of distribution. The funda- 
mentals of this theory must be borne in mind throughout, 
for it forms the working basis of the programme of govern- 
ment regulation. The productivity theory, in contrast with 
the theory of distribution already advanced in this book, main- 
tains that there exist certain eternal economic laws which 
afford to each of the three factors of production, land, labor 
and capital, a return equal to what each factor respectively 
creates. If capital is responsible for creating half of a certain 
amount of wealth, then the return in the form of interest 
will equal half of the new wealth. The remaining half 
would be divided between labor and land in a proportion 
corresponding to the amount of wealth that they respectively 
created. 

Throughout this theory runs the idea of a natural justice 
which automatically rewards each factor in production ac- 

452 



THE PROGRAMME OF GOVERNMENT REGULATION 



453 



cording to its deserts. If this does not happen, it is because 
of some man-made law which gets in the way to impede 
the path of natural justice. The great impediment to the 
automatic operation of these laws of natural justice is 
monopoly. Quoting from Essentials of Economic Theory, 
a recent work by Professor Clark, with whose name the pro- 
gramme of government regulation is closely associated, "If 
anything should definitely end competition, it would check 
invention, prevent distribution, and lead to evils from which 
only State socialism would offer a way of escape. Monopoly 
is not a mere bit of fiction which interferes with the perfect 
working of economic laws. It is a definite perversion of the 
laws themselves." Accordingly, every policy of the adherents 
of the present programme aims to destroy monopoly in some 
of its many forms and to restore the free play of competitive 
forces. 

The ideal which these adherents have in mind is that re- 
ward should equal effort, that pay should equal work. To 
them it is just as wrong to get a reward greater than the 
effort as it would be to get a return less than the effort. Only 
absolute equality between the two is justice, for they contend 
that if some one's reward is larger than his effort, the reward 
of some one else must be smaller. Monopoly and exploita- 
tion are complementary terms. The existence of one implies 
the existence of the other. In order that neither may exist, 
the followers of the productivity school advocate having the 
government maintain ''cost prices." Accordingly, one of 
the chief functions of government becomes the regulation of 
prices. And the only kind of prices that the government 
should sanction are "cost" prices, for, quoting Professor 
Clark, "only 'cost' prices are just prices." 

It is interesting to note, in passing, a contrast between this 
school of thought and that of the laissezfaire theory already 
referred to. Each maintained the reality of deep-rooted, 
imiversal economic laws. The latter school held that because 
of the existence of these natural economic laws, man-made 



454 TEXT-BOOK OF ECONOMICS 

laws were either useless or else positively harmful. The 
believers in government regulation, in contrast, call upon the 
government to step in to remove whatever obstacles arise 
to the free operation of these economic laws. In their view, 
the greatest barrier is the presence of monopoly, a phenom- 
enon so immense that individual strength cannot remove it, 
and therefore collective, or government, strength must be 
invoked. The introduction of the corporation form of doing 
business of the gigantic trusts and mammoth combinations 
among common carriers has inevitably led to government 
regulation. 

It is evident that the word "monopoly" as used in 
this chapter refers to private monopolies. There are many 
forms of State monopoly, such as the municipal ownership 
of street railways, lighting plants, and the like, which hardly 
share the criticism urged against monopolies of a private 
nature. The monopoly power here under the ban of dis- 
approval means the ability to so control the production of an 
article of general consumption that one can make as much or 
as little of it as he pleases and charge for it whatever he has 
a mind to, regardless of public interest. 

Having thus in mind the viewpoint of those believing in 
"cost" prices, what concrete measures do they advocate 
to reach their goal ? We shall discuss only three out of the 
possibility of many. First, in regard to transportation. It 
is but natural that their attention should be turned in this 
direction, because of all forms of monopoly the railroad is one 
with most far-reaching results. By nature of its organization 
the railroad is a monopoly, and in addition it has the ability 
of creating many other monopolies. Through discrimina- 
tions it has often proved the most effective weapon in the 
hands of certain industrial corporations for driving competi- 
tors from the field, thereby making possible for itself large 
monopoly profits. To prevent the railroad from "charging 
all the traffic will bear," which is the source of its monopoly 
profits, the platform of government regulation contains a 



THE PROGRAMME OF GOVERNMENT REGULATION 



455 



plank for the government to exercise the rate-making power. 
This is a request repeatedly made by the Interstate Commerce 
Commission and which up until the present has always been 
denied. 

Of course, the basis on which the Commission would act 
in fixing rates would be the "cost" basis. Railroads would 
be allowed to charge only that rate which would afford a 
fair return on the capital invested, no more, no less. If need 
be to accomplish this end, the adherents of the programme are 
willing to go one step farther. They maintain that it may 
even be necessary for the government to undertake a few lines 
of production. To quote again Professor Clark, the gov- 
ernment "may construct a few canals, with the special view 
to controlling charges made by railroads. It may own coal 
mines and either operate them or control the mode of operat- 
ing them, for the purpose of curbing the exactions of monopo- 
listic owners and securing a continuous supply of fuel. 
It may even own some railroads for the sake of making its 
control of freight charges more complete. Such actions 
as these may be slightly anomalous, since they break away 
from the policy of always regulating and never owning; 
nevertheless, they are a part of a general policy of regulation 
and a means of escape from a policy of ownership. The 
selling of coal by the State may help to keep independent 
manufacturing alive, and carrying by the State may do so 
in a more marked way. If so, these measures have a gener- 
ally anti-socialistic effect, since they obstruct that growth of 
private monopoly which is the leading cause of the growth of 
socialism." 

Second, in regard to the position of labor. To those be- 
lieving in the "cost" policy, labor unions are not an unmixed 
good. This follows from the fact that most labor unions 
are able to exercise a degree of monopoly power. Whenever 
they force wages up, solely as a result of this power, and 
charge for their services "all that the traffic will bear," they 
are violating the principle that only "cost" prices are just 



456 TEXT-BOOK OF ECONOMICS 

prices. Professor Clark maintains that there is a "natural 
standard of wages," and that in case of strikes it is the duty 
of the government to step in and secure a certain degree of 
conformity to that standard. He believes that "the State 
is bound to ascertain and declare what rate is just, to confirm 
the workers in their positions when they accept them, and to 
cause them to forfeit their right of tenure if they refuse it. 
If the workers thus forfeit their claim, their positions are 
clearly open to whoever will take them, and the State is bound 
to protect the men who do this." In his recent book, 
Essentials of Economic Theory, Professor Clark devotes 
considerable space to methods of arbitration whereby the 
government should endeavor to maintain "cost" prices for 
labor. 

Third, in the field of protection. Wherever protection 
tends to build up an industry, so that it will ultimately be 
able to stand alone, the programme for government regulation 
is in full accord. Wherever it tends to build up monopoly, it 
is opposed, and stands for revision, either by enlarging the 
free list or lowering the rate of duty. It recognizes that there 
is a principle to be observed in protection and that it is not 
a matter of hit or miss. The duty should be no higher than 
sufficient to put the American and foreign producer on an 
equality. If it is higher, it enables monopoly profits. The 
adherents of the programme recognize the fact that in a 
dynamic society, protection is economically just, but that if 
not properly regulated by the government, it may give rise 
to industrial monopolies. 

The attitude of the programme for government regulation 
on all the modern problems, along with the three just 
mentioned, can well be summarized in the closing words 
of Essentials of Economic Theory: "The dynamic ele- 
ment in economic life depends on competition, which at 
important points is vanishing, but can, by the power of the 
State, be restored and preserved, in a new form, indeed, but 
in all needed vigor. With that accomplished, we can enjoy 



THE PROGRAMME OF GOVERNMENT REGULATION 457 

the full productive efifect of consolidation without sacrificing 
the progress which the older type of industry insured." 



TOPICS FOR CLASS DISCUSSION 

1. What is the attitude of an advocate of government regulation on 
the question of competition? 

2. Is there any rule for determining the limits of State interference? 

3. Would an advocate of this programme propose having the State 
fix rents? 

4. What is the view of the advocates of this programme on the subject 
of the "economics or combination"? 



CHAPTER LXIII 

THE PROGRAMME OF SINGLE TAX 

This programme, in common with the two that have been 
already discussed, aims at securing justice to all by the 
abolition of monopoly and all other forms of special privi- 
lege. In its proposed destruction of monopoly, the Single 
Tax programme relies upon State action much as does the 
programme of government regulation. However, it goes one 
step farther in its policies. The government regulation pro- 
gramme includes in State functions the fixing of "cost" 
charges for transportation, labor, and tariff-protected com- 
modities, while the Single Tax programme aims at the gov- 
ernment ownership ' and control of land and all natural 
resources. The public ownership of all free gifts of nature is 
emphasized, because in the mind of the Single Taxer the 
system of the private ownership is the basis of all monopoly. 
He contends that were land and the natural resources as 
free to all as the air, not only would land monopoly cease, 
but also the monopoly of transportation and those industrial 
monopolies built upon a monopoly control of raw products. 

The Single Taxer is interested in the destruction of land 
monopoly because of the effect that he believes it would 
have upon wages. He maintains that wages can never fall 
below what a man can earn by working for himself in direct 
contact with nature. If by mining a man can earn ten dol- 
lars a day, then employers must pay wages of at least ten 
dollars a day. The ability of labor to turn directly to the 
soil would be guaranteed under the Single Tax. This would 
make possible a natural standard below which wages could 
never fall. It is the humanitarian side, i.e. interest in the 

458 



THE PROGRAMME OF SINGLE TAX 



459 



question of low wages, that has laid the foundation of the 
programme of Single Tax. 

Henry George, in his Progress and Poverty, published 
in 1879, asks the question, "Why in spite of the increasing 
productive power do wages tend to a minimum which will 
give but a bare living?" Starting with this question as a 
basis, Henry George attempts to solve the problem by a 
change in the methods of taxation. 

His theory is not a new one. In the time of Oliver Crom- 
well, in the middle of the seventeenth century, a man named 
Gerrard Winstanley headed the "digger movement," which 
was an attempt to secure to the common people the right 
to cultivate the common land. Winstanley held that they 
had a right to it because God gave land equally to all, and 
all should be able to enjoy it. 

In the middle of the seventeenth century the Physiocrats, 
a school of French philosophers, reached the conclusion that 
a tax on land alone was desirable because : — 

1. The community was composed of a number of indi- 
viduals, each having similar rights. 

2. Each individual is entitled to such enjoyment of these 
rights as he can secure through his labor. 

3. His labor should, therefore, be left unhampered by 
any restrictions in the form of taxes. 

4. In pursuance of these laws, men should be allowed to 
do whatever will promote their happiness so long as they 
do not thereby curtail the happiness of others. 

5. Only extractive industries, such as mining and agricul- 
ture, are really productive. Manufacturing and trade do 
not create, they merely transform, value. 

6. A State should interfere as little as possible with the 
pursuit of the happiness of its individual members. It 
should collect its taxes in the simplest manner possible. 
The tax should be levied on the only really productive 
factor — natural resources. This ideal is, therefore, a 
single tax in the form of a land tax. 



460 TEXT-BOOK OF ECONOMICS 

Winstanley based his doctrine on religion. The Physio- 
crats based theirs on natural law. Henry George, from the 
standpoint of social justice, reaches the same conclusion. 
He points out the fact that in primitive communities there 
is little difference between the richest and the poorest. In 
contrast with this condition, where the wealth is greatest, 
population densest, and machinery most highly developed, 
there is the deepest poverty. "The tramp comes with the 
locomotive — and almshouses and prisons are as surely the 
marks of 'material progress' as are costly dwellings, rich 
warehouses, and magnificent churches. Upon streets lighted 
with gas and patrolled by uniformed policemen, beggars 
wait for the passer-by, and in the shadow of college and 
library and museum are gathered the most hideous Huns 
and Vandals of whom Macaulay prophesied." 

In these words George attempts to show the relation 
which now exists "between progress and poverty — the latter 
seemingly an inevitable concomitant of the former. To do 
away with poverty is his object, and for the attainment of 
this object he proposes his Single Tax. 

Land is permanent and can be neither increased nor 
decreased in amount by human effort. It is only improve- 
ments that are subject to change. If taxes are laid on doors 
and windows, there will be fewer doors and windows; if 
taxes are laid on industry, there will be less industry; but 
taxes on land cannot decrease the amount of land. The 
present taxing system lays its burden upon industry, which 
is thereby decreased, or at least checked, instead of laying 
it upon land, which is unchangeable. 

To remedy the anomalous contrasts of progress and 
poverty, and the manifest unfairness of a taxing system 
which falls heaviest upon those least able to bear it, Henry 
George proposes to abolish all taxes save "one single tax 
levied on the value of land irrespective of the value of im- 
provements in or on it." All other taxes would be abolished, 
hence the name, "Single Tax." 



THE PROGRAMME OF SINGLE TAX 46 1 

In discussing the Single Tax, it must be borne in mind 
that this land tax is a tax, not upon real estate, but upon 
land itself. Land is a natural resource, something fur- 
nished by nature and used by man. Real estate includes 
both the land originally provided by nature and the im- 
provements made upon it. The Single Tax would be a 
tax on land values alone, and would take for the use of the 
State the entire "unearned increment" of land. 

What is the unearned increment ? 

Three hundred years ago the island of Manhattan sold 
for $24. To-day the land alone, irrespective of buildings, is 
worth approximately $2,400,000,000. Who is responsible 
for this increase? 

Every year millions of people go to New York, and hun- 
dreds of millions of dollars in commerce and trade center 
around the city; each new railway line carries more trade 
to New York and hence adds to the value of the island. 
The presence of this vast population, the development of 
trade, and the excellent harbor have all worked together to 
make the value of New York real estate increase by leaps 
and bounds. The responsibility for the increase rests, not 
with any man, but with the nation as a whole. 

Under the present system this increase or unearned incre- 
ment goes into the pockets of the few who hold New York 
real estate. The Single Taxer maintains that this increase 
should go to the government in taxes, as it is the whole people 
that caused the land to grow in value. 

The Single Tax would cover the full economic value of 
the land. It would be so high that no man could secure 
an income by merely holding land. All of the income de- 
rived from land itself would be returned in the form of a 
tax to the government. The income, on the contrary, 
derived from the improvements on the land would not be 
taxed at all. Hence the emphasis would be laid on improv- 
ing land, rather than holding it unused for a rise in value. 

In all parts of the country, at the present time, land is 



462 TEXT-BOOK OF ECONOMICS 

held for speculative purposes. It will not do to rent the 
land for a term because a sale may be effected at any time. 
No one will rent land for short terms, because there is too 
much risk involved. The result is that the land lies idle 
until the value has increased to a point deemed by its owner 
a satisfactory selling price. It may then pass on to an- 
other owner who will also hold it for a rise in value. The 
tax system at present in vogue encourages this land specu- 
lation by taxing unimproved land less heavily than im- 
proved land. A premium is thus placed on unimprove- 
ment. 

If the tax laws were so framed that it would be necessary 
either to improve land or let it go, land would not be held 
unimproved. There would be no land speculation. Con- 
sequently a piece of unimproved land would be free to 
everybody until some one took it and used it. This would 
prevent land speculation and would give all an opportunity 
to profit by natural resources. Monopolies basing their 
power on a control of natural resources would therefore be 
impossible. 

The Single Taxer does not desire to have any new tax laid. 
The land tax already exists, together with taxes on many 
other forms of property. The other taxes should be abolished, 
and the land tax alone retained and increased. 

The advocates of the Single Tax do not maintain that it 
will change human nature. "That man can never do;" 
but it will bring about conditions in which human nature 
can develop what is best instead of, as now, in so many 
cases, what is worst. 

By removing the obstacles which taxes impose upon in- 
dustry, the Single Tax will result in an enormous increase 
in the productive power of the community. It will guarantee 
a more equitable distribution of the wealth of the com- 
munity, because those best able to bear the tax, namely, 
the landowners, will be those who are forced to pay it. It 
will open the gates of civilization to every one by doing away 



THE PROGRAMME OF SINGLE TAX 463 

with the labor problem to a large extent and preventing the 
existence of unearned property. 

These are the claims which the Single Taxers advance for 
their movement. Whether the tax if adopted could bring 
these changes has not yet been conclusively established. 

The advocates of the Single Tax present their arguments 
under two heads. They hold that the tax is expedient, and 
that it is just. The expediency of the Single Tax rests upon 
the following arguments. 

It would dispense with an intricate system of internal 
revenue and tariff collection. By this saving in the mech- 
anisms of taxing, much that is now spent for the purpose 
of collecting taxes would be left in the treasury. Further- 
more, the things now taxed are not generally open for public 
inspection. Taxes are dodged because there is no way to 
find how much personal property men have. Land lies in 
such a position that all may see it. It is therefore practically 
impossible for a man to escape a tax on his land, whereas it 
is not only possible, but very probable, that men will in so 
far as possible dodge personal taxes. 

As previously stated, by removing the burdens which are 
laid upon industry, the Single Tax would increase the pro- 
ductive capacity of the community. All taxes except the 
Single Tax oppress industry and lessen wealth. Not only 
would the Single Tax remove restraints upon industry and 
thus allow a greater freedom in production, but it would 
bring more land into productive uses, as a rich man would 
find it difficult or useless to hold land for a future rise in 
prices. Under the Single Tax, any increased value or un- 
earned increment would go to the State and not to the indi- 
vidual holding the land. 

Thus the abolition of taxes on industry and the substitu- 
tion of a Single Tax would free the active elements in pro- 
duction, labor and capital, and would bring into use more 
land than is now available for productive purposes. ''If 
any one will look around him to-day and see the unused or 



464 TEXT-BOOK OF ECONOMICS 

half-used land, the idle labor, the unemployed, or but poorly 
employed capital, he will get some idea of how enormous 
would be the production of wealth were all the forces of 
production free to engage." 

The overtaxing of industry and the undertaxing of land 
is placing in the hands of the landowners of the community 
an enormous amount of wealth, and at the same time creat- 
ing poverty among those who do not hold land. The system 
which creates the millionaire, creates likewise the pauper, 
criminal, or other parasite which hamper the progress of 
society. 

The Single Tax would fall heaviest on the cities where 
land values are greatest. This would relieve many agricul- 
tural districts which are now heavily oppressed. The tax- 
ing of the thickly populated districts in proportion to their 
ability to pay would in a measure prevent the migration of 
people from country districts. 

Not only is the Single Tax more lenient toward the poor 
agriculturalist than the present system, but its advocates 
likewise feel that it will be far more just. In the first place, 
the right of property does not rest on laws. As the earth 
was not made by man, but merely supplies a temporary 
dwelling place for generation after generation, the men born 
into the world have an equal right to the things which it 
contains. Therefore, it is not just that a man should take 
possession of the land and by holding it compel the rest of 
the world to pay tribute to him. 

The natural resources of a nation should be used for the 
benefit of the entire nation, and this condition of affairs can 
only be brought about by shifting the burdens of taxation 
from the majority who do not hold land to the minority who 
do. Men have a right to hold property, such as tools or 
houses, which are the result of their own labor, but they have 
no right to hold the land, which is the result of no man's 
labor, but is the gift of nature. A tax laid on tools or any 
other creation of human labor violates a right of property, 



THE PROGRAMME OF SINGLE TAX 465 

because it takes from the man who has created it part of the 
thing which he has made. The tax on land values, however, 
takes from individuals nothing that of right belongs to them. 

The value of land is not due to the work of men and there- 
fore its value bears no relation to the cost of producing it. 
The land about New York harbor is valuable because all 
the people of the country have agreed to transact a certain 
amount of their business in and about New York. The 
value which is created in the land as the result of the centrali- 
zation of business in New York is secured by a few individual 
landowners. This, maintain the Single Taxers, is mani- 
festly unfair because they did not create the value of Man- 
hattan real estate, nor are they responsible for increasing it, 
yet the increase goes to them. The created value should be 
used for the purpose of developing certain community in- 
terests. With these properly secured and safeguarded, both 
wealth and poverty would be at a minimum and the products 
of the community more equally divided. Such are the con- 
tentions of those who maintain that a Single Tax would solve 
the problem which has perplexed students for centuries. 

The Single Tax, as has been pointed out, does not represent 
an original theory on the part of Henry George. It is the 
application of the Single Tax to the solution of social and 
industrial problems that is original with him. 

The ideas of Henry George, advanced in the latter part of 
the nineteenth century, were evolved at a time of the most 
complex stage of industrial civilization to which the world had 
thus far attained. Had the theories been proposed for a new 
and developing country, they might have had more chance of 
adoption, but they were to be applied to a country whose 
institutions were thoroughly developed, and whose traditions 
were set in the opposite direction. Men find it hard to change 
habits of thought and traditionary ideas, and the scheme of 
Henry George has proved a failure so far as an applica- 
tion of its principles to the affairs of government has been 
concerned. 



466 TEXT-BOOK OF ECONOMICS 

In the first place, Henry George drew his illustrations and 
ideas from the most extreme cases which existed during the 
century. He saw the great land grants in California lying 
idle, while unsuccessful miners clamored for a place to earn 
a living. He saw the contrast between the high wages in- 
cident to the discovery of gold and the low wages which 
followed the private appropriation of all gold-bearing land. 
He saw the slums of London, Philadelphia, and New York. 
He saw the effect on Ireland of absentee landlordism. 

The country as a whole did not, however, in the time of 
Henry George, ajid does not to-day, present any serious case 
of landlord oppression such as that which existed in Ireland 
in the '40's, and which exists in Russia to-day. While the 
Single Tax method of solvmg economic problems has received 
great attention from scholars and thinkers since its statement 
by Henry George, the doctrines were never applied because 
there was not a sufficiently active demand for them. 

In contrast with the acceptance of the doctrines in the 
United States and England, it is interesting to note the de- 
velopments in New Zealand. Before New Zealand was 
settled to any extent, a few men secured possession of large 
tracts of land at nominal prices. As the colony filled up with 
settlers and land became scarce, this land lay idle, held for 
a "rise" in values. On the one hand were these vast estates 
unused by the holders, and on the other hand were people 
unable to secure the land which they wished to farm, crowded 
together, and living in poverty and wretchedness. 

The government solved the difficulty by passing a series 
of acts which permitted the breaking up of the large estates 
by high taxation on unimproved land or by repurchase. The 
act provided for a commission which valued the estates and 
turned them over to the government, which paid the amount 
of this valuation. The estates thus repurchased were divided 
up into small farms and in some cases sold, but in many other 
cases they were rented for long terms. 

In this way New Zealand successfully solved a land prob- 



THE PROGRAMME OF SINGLE TAX 467 

lem which had become intolerable, by methods approximating 
the suggestions of Henry George. As yet the United States 
has not been forced into so serious a situation and the de- 
mand has not been so strong for a repurchase act. At the 
present time, however, when public land has practically 
disappeared, and land resources, particularly those in the 
forms of mineral wealth, are being centered in fewer and 
fewer hands, it is certain that a demand for some change of 
system will make itself felt sooner or later. 

Perhaps the most vital reason for the slow growth of the 
Single Tax has been the rather abstract character of its 
doctrines. Without question, Henry George's statements 
of the Single Tax have been effective in modifying the views 
of economists and thinking persons in general on matters 
relative to land monopoly and special privilege. It is, on 
the other hand, undoubtedly true that the average man finds 
it difficult or impossible to follow the Single Tax theory and 
see the efficacy of the remedy which the Single Taxer ad- 
vances. It is not like the labor union movement or the 
socialist movement, which appeals directly to the people, 
and from which they can see the possibility of a direct bene- 
ficial outcome. The Single Tax is theoretical and requires 
a trained mind to follow its arguments. For the majority 
of the community it is merely a name. 

Under modern conditions another force has grown up in 
the community equally important with land in the production 
of wealth. Machinery has come to stay. The Single Taxer 
proposes to socialize land only, holding that when land has 
been socialized the consequent rise in wages will be sufficient 
to secure to the laborer sufficient capital to further any 
enterprise in which he may be interested. 

As a matter of fact, under modern conditions, with the 
possible exception of the man who is panning gold and the 
fisherman or hunter, no man can carry on a productive oper- 
ation without a considerable amount of wealth invested in 
capital. The farmer must have machinery and animals. 



468 TEXT-BOOK OF ECONOMICS 

The woodman must have many tools to convert standing 
timber into lumber. The manufacturer of almost any 
staple commodity requires a great mass of capital goods. 
The miner must be backed by a considerable amount of 
capital before he can begin operations. In short, all modern 
enterprises, while deriving their wealth mainly from the soil, 
must depend intimately upon machinery if they are to be 
successfully worked out. 

The argument of the Single Taxer is that if land were made 
free, all wages would rise to the level which a man could 
secure while working on free land. As a matter of fact, 
before he begins to work on the land in competition with 
others, the modem worker would be forced to provide him- 
self with machinery. This the average man at present is 
not in a position to do. Not only would the wage worker 
need "free land" but "free capital" as well before he could 
work under present industrial conditions. Of this fact 
the programme of the Single Tax takes no cognizance. 

Henry George attempted to put himself directly into 
politics. He ran for the office of mayor of New York City 
against Hewitt and Roosevelt, the former being elected. 
His death resulted from the strenuous exertion incident to 
a later campaign in which he again tried for the same office. 
In politics the Single Taxers have affiliated themselves with 
the Democrats because the latter stood for a minimum tariff, 
and the Single Taxers, who hold that no taxes should be laid 
on anything except land, sided with the party standing for 
the least tax. 

By siding with a large group the Single Taxers have become 
merged with this group, as a larger group always goes with 
a smaller one, and while the policies of the Democrats have 
remained unchanged, those of the Single Taxers have suffered 
some violence. A few men in responsible positions hold the 
Single Tax doctrine ; but nowhere in the United States, except 
in a Single Tax colony of five hundred and eight persons at 
Fairhope, Alabama, has the Single Tax been put into opera- 



THE PROGRAMME OF SINGLE TAX 469 

tion. So far this colony has met with considerable success, 
but, like all other similar ventures, it has had little influence 
on the rest of mankind. 

The Single Taxer has rendered his chief service to the com- 
munity by causing the thinking element to regard in a new- 
light the problems of land monopoly and special privilege. 
He has indicated the way in which a number of our problems 
may ultimately be solved. His critics maintain that he does 
not present a complete solution for the undesirable condi- 
tions, in modern society. 

TOPICS FOR CLASS DISCUSSION 

t. Outline the life of Henry George, to show the background of the 
reform which he advocated. 

2. Who were the Physiocrats? 

3. What is the full economic value of land^ which Henry George 
would absorb by his tax? 

4. Outline the arguments for and against the Single Tax. 

5. From what group in the community does the Single Tax secure 
its chief support? 

6. What is the relation between the Single Tax and Socialism? 

7. How radical a break from our social system would be involved in 
the adoption of the Single Tax? 

8. What group would derive the greatest benefits through the Single 
Tax? 

9. What group would suffer most? 

10. What influence has the Single Tax doctrine had in economic 
thought? 

11. What has the Single Tax accomplished as applied in New 
Zealand ? 



CHAPTER LXIV 

THE PROGRAMME OF SOCIALISM 

In marked contrast with each of the four other programmes 
stands that of the Socialists. The "square deal" accepts 
the present organization of society but asks for fair play. 
Government regulation stands for a destruction of all mo- 
nopolies in order that under the economic law of competition 
just, i.e. "cost," prices may obtain. The Single Taxer 
would restore social justice by abolishing all private mo- 
nopoly in land and natural resources and restoring to all free 
access to the soil. The programme of social work, as we shall 
see, seeks to improve the environment that each individual 
may ultimately have equality of opportunity. The Socialist, 
on the other hand, comes forward in opposition to the whole 
present order of industry and declares that there is no cure 
for our modern ills unless we uproot the capitalist system 
of production and put in its place State cooperation, thus 
entirely destroying the competitive system which each of 
the other programmes accepts. In further contrast with the 
four other plans of reform. Socialism rejects all economic 
theories of distribution, and substitutes in its place a social 
control of the annual income of society, in ways that it deems 
best to aid the social end. 

The recent growth of Socialism is one of the important 
phenomena of modern times. Although the Socialist party 
in this country numbers but about a half million, it has at- 
tracted to its ranks some capable men from many walks of 
life. No one can claim to be a close thinker until he has 
a clear perception of the Socialist's viewpoint. One may 

470 



THE PROGRAMME OF SOCIALISM 471 

reserve the right of agreeing with him or not as he in his 
individual judgment sees fit, but one cannot afford to be 
ignorant of the programme that he offers. To many the word 
"Socialism" stand in the same category as "anarchy," and 
that, in the same category as "bomb-throwing." Such 
confusion of thought is the mark of an untrained mind. 

In studying any new programme, one should remember that 
there is a natural prejudice against that which disturbs 
our preconceived notion of things. The old always carries 
the weight of authority with it. The new must stand alone. 
It has been the endeavor in these chapters to present the five 
viewpoints now under consideration in an impartial, dis- 
passionate manner. 

The objections which the Socialist makes to the present 
order of things seem to group themselves under five headings. 
First and foremost, there is his belief in the universality of 
exploitation. Exploitation consists in getting less in return 
for your services than you are worth. According to the 
Socialist's use of the term, a day laborer creating in a year 
$900 worth of value and receiving only $400 in wages is 
being exploited by the capitalist to the amount of $500. In 
the eyes of the Socialist, exploitation is an inevitable result 
of a system permitting the private ownership of the tools 
of production and the purchase of labor in the same manner 
as any commodity. The owner of the machine becomes the 
master, and the worker must accept his pay or starve. Since 
it is to the interest of the tool owner to get the tool 
user to work at the lowest figure possible, exploitation 
results. 

The second criticism that the Socialist urges against the 
present system is that it permits the growth of monopolies 
and offers no effective way to check them. Many of the 
fabulous fortunes of to-day have been made through the 
monopoly control of articles of general consumption, — coal 
meat, ice, and iron ; or through the ownership of monopoly 
business, — street-car lines, telephones, railroads, gas and 



472 TEXT-BOOK OF ECONOMICS 

water supply. The Socialist maintains that there is no 
escape to-day from the monopolist's grip except by State 
ownership and operation of industry. He believes that it is 
hopeless, and furthermore undesirable, to endeavor to restore 
competition as a regulator of prices. As competition largely 
gave way to combination, so he believes State monopoly must 
succeed private monopolies. 

The third criticism offered by the Socialist is that society 
lacks a plan for the constructive development of all of its 
parts. He sees chaos in the present arrangement. The 
world is a bundle of contradictions to him. In an age of 
plenty, he still sees the universal specters of poverty, ignorance, 
and crime. Although man has conquered his environment 
through harnessing the forces of nature and discovering her 
deepest secrets in the plant, animal, and mineral worlds, there 
still await solution the problems of the underfed child, 
the homeless man, imperfect sanitation, low pay, and lack 
of employment. Progress is a reality to him, but so is 
poverty. Wherever he looks he sees good and bad. Which- 
ever it happens to be, seems to him to be but the result of 
blind chance. Too often the welfare and happiness of many 
are dependent solely on the accident of birth. The race of 
life is unequal. Some start with such handicaps as a body 
undernourished from infancy, and a mind undeveloped, 
having nothing beyond the merest rudiments of an education. 
These are predestined to a life in a factory at thirteen or 
fourteen, while others have the possibility of a college diploma, 
and social and business position awaiting them. 

The fourth criticism that the Socialist urges against modern 
society is its wastefulness. Competition is uneconomic; 
cooperation, economic. Under the competitive system 
much is done in duplicate and triplicate that could just 
as well be done once under a system of cooperation. This 
is particularly true in the distribution of goods for consump- 
tion. A half dozen competing hucksters, milkmen, and ice- 
men pass over the same route daily when half the number 



THE PROGRAMME OF SOCIALISM 



473 



might have distributed the same amount of goods had there 
been no competition. 

In the question of milk, meat, and like supplies, we can 
no longer trust to the private business conscience to give us 
goods free from disease and of unadulterated quality. The 
government now takes the indirect method of employing 
a large corps of inspectors merely to go over the work of pri- 
vate competitors, when it might do the work itself. 

A fifth criticism of the Socialist is against the essentially 
evil nature of competition. In industrial competition he 
sees a force that calls out all the bad in human nature, while 
at the same time suppressing much that is good. To beat 
their competitors and make a profit, men adulterate food, 
employ child labor, violate factory inspection laws, and pay 
low wages. Competition puts the law-abiding and humane 
employer at a disadvantage and forces the indifferent employer 
over into the camp of those who seek success at any price. 
The Socialist points out the fact that many a child labor 
battle has been lost in a Northern State because the cry was 
raised by even the most public-spirited employers that their 
business would be ruined if they had to compete with the low 
restriction put upon child labor in certain of the cotton manu- 
facturing States of the South. 

And so the Socialist, weighing the present organization of 
society in the balance and finding it wanting, comes forward 
with a plan built on an entirely different basis. He proposes 
to substitute for the private ownership of all land, and capital 
goods, i.e. factories, railroads, stores, and the like, government 
ownership and operation. Because under such a system there 
would then be no capitalist to demand interest, all the returns 
of labor would go to labor and exploitation would cease. As 
the government would own all the land and natural resources, 
there would be no monopolist's profits to be paid out of the 
pockets of consumers. Because competition would be 
destroyed, there would be no further incentive to adulterate 
goods, to employ child labor, or for the violation of health 



474 TEXT-BOOK OF ECONOMICS 

and fire ordinances. In place of a society of competing 
units, each struggling to get the most for himself, the State 
under Socialism would substitute an orderly plan. Every 
child would be guaranteed education and support at State 
expense, and every man in old age after his life work is over 
would be an honored pensioner of the government. Instead 
of working ten and eleven hours a day, the day would be cut 
in half, through the economies of cooperative action and the 
absence of social parasites. 

Under Socialism every one would be a government employee. 
Instead of working for this corporation, or that entrepreneur, 
a man would work for the government, much as policemen, 
letter carriers, and firemen now do. The workman would 
draw his pay from the State as he draws it from this or that 
corporation and spend it as he sees fit, except that he could 
neither speculate in land nor stocks, as they would not be 
for sale. 

The Socialist believes that in many ways society has out- 
grown the institution of private property, just as much as 
it has outgrown the institution of property in individuals 
known as slavery. He admits that both may have been val- 
uable at a certain stage in the development of civilization, but 
that that time is now passed. In attacking the institution 
of private property, it should be borne in mind that the 
Socialist opposes private ownership in land, natural resources, 
and the tools of production only. Over the ownership of 
consumption goods, as houses, clothes, food, and the like, 
Socialism, unlike Communism, would exercise no control. 

The Socialist, in common with the Single Taxer, believes 
that the land is a gift to all from the Creator as much as air 
or water. He would, therefore, restore it to its original state. 
He feels, however, that the Single Taxer stops short in his 
reform in confining common ownership to only two means 
of life, farming and mining. He believes that the tools of 
production are equally, if not more so, means of life than land. 
Therefore, he contends they should be held in common as 



THE PROGRAMME OF SOCIALISM 475 

much as land and the natural resources. He maintains that 
social expediency, if not social justice, requires as much. 
Arguing solely from the standpoint of expediency, he upholds 
that if the best interests of society are served by a system 
of common ownership of its capital goods, then there is no 
reason why such a system should not be put into operation. 
Public opinion needs only a little further development. As 
it is now, there is hardly such a thing as absolute owner- 
ship. One may own but he may not or shall not abuse, 
his horse. Even now society has an interest in private prop- 
erty, and the will of the individual must bow to it. 

We are here naturally led to ask, but how can this change 
be wrought and all industry nationalized? This would re- 
quire the acquisition by the government of not only all land 
and resources, but also of all railroads and industrial plants. 
Could this be accomplished with public opinion in its present 
condition ? Such Socialists as Mr. H. G. Wells would an- 
swer, "No." He writes: "Socialist institutions, as I under- 
stand them, are only possible in a civilized state, in a state 
in which the whole population can read, discuss, participate, 
and in a considerable measure understand. Education 
must precede the Socialist State." And again : "I have tried 
to let it become apparent that while I do firmly believe, not 
only in the splendor and nobility of the Socialist dream, but 
in its ultimate practicability, I do also recognize quite clearly 
that with people just as they are now, with their prejudice, 
their ignorance, their misapprehension, their unchecked 
vanities and greeds and jealousies, their untutored and mis- 
guided instincts, their irrational traditions, no Socialist State 
can exist, no better State can exist, than the one we have now 
with all its squalor and cruelty. Every change in human 
institutions must happen concurrently with a change in ideas. 
Upon this plastic, uncertain, teachable thing, human nature, 
within us and without, we have, if we really contemplate 
Socialism as our achievement, to impose guiding ideas and 
guiding habits, we have to coordinate all the Good Will 



476 TEXT-BOOK OF ECONOMICS 

that is active or latent in our world in one constructive 
plan." 

Until this intellectual revolution is accomplished, what is 
the course open to the Socialist by which he may ultimately 
reach his goal of the complete socialization of industry? 
The answer is found in the following quotations from a 
Fabian Socialist : — 

"The peaceful and systematic taking over from private 
enterprise, by purchase or otherwise, either by national or 
by the municipal authorities, as may be most convenient, 
of the great common services of land control, mining, transit, 
food supply, the drink trade, lighting, force supply, and the 
like." 

"The systematic raising of the minimum standard of life 
by factory and labor legislation, and particularly by the 
establishment of a minimum wage." 

These, along with the measures providing a longer school 
age, public baths, parks, and playgrounds, are some of the 
immediate lines of action open to the Socialist. 

What the ultimate outcome of Socialism will be it would 
indeed be difficult, if not presumptuous, to state. Judging 
from the recent trend of thought, it might be safe to predict 
that public opinion will ultimately come to be much more 
unified on many of the economic questions involved in 
Socialism. There already seems to be a conciliation going 
on between those who have hitherto been in opposing schools 
of thought. The Socialist of to-day seems to be more 
individualistic than his predecessor, while the old-time 
believer in laissez faire has practically disappeared, and his 
successor, the man who still styles himself an individualist, 
has become more and more a Socialist. The force of this 
statement can be felt by comparing on one hand the works 
of such Socialists as Marx and Engels with those of H. G. 
Wells of England and John Spargo of America, and on the 
other hand, the works of such an individualist as Herbert 
Spencer with Professor Clark, or men of the type of President 



THE PROGRAMME OF SOCIALISM 



477 



Roosevelt. This change in a measure is the result of the 
growth of social consciousness which to-day seems to permeate 
the atmosphere of modern life. Certainly the political 
and social sciences are receiving increasing attention from 
both practical and academic standpoints. The failure of 
many communistic schemes seems to have impressed on 
the minds of reformers that in the past they often misread 
human psychology by allowing no room for the expression 
of individuality. 

From a theory of laissez /aire we have so enlarged the 
functions of government that to-day they not only include 
factory and food inspection, child labor, and compulsory 
education laws, but in some places public ownership and 
operation of the public utilities of light, water, and street 
railways. Many thoughtful students of modern problems 
— men who do not belong to the ranks of the Socialist — 
feel that the time is not far distant when we shall be com- 
pelled to make a change in our present form of inheritance 
law, whereby vast fortunes are passed on from one genera- 
tion to another. Some also feel that as a result of the pres- 
ent interest in child labor, women in industry, and the 
sweating evil, we shall ultimately fix not only the number of 
hours for work but also the rate of pay for women and 
children. 

These changes would seem to indicate a conciliation that 
is rapidly being effected. This conciliation is not one-sided. 
The following from the pen of John Spargo indicates how 
Socialism has abandoned some of its older traditions of 
substituting at every point State action for that of the in- 
dividual. "The new society must include at least the 
following: (i) ownership of all natural resources, such 
as land, mines, forest, oil wells, and so on; (2) operation of 
all the means of transportation and communication, other 
than those of purely personal service; (3) operation of all 
industrial production involving large capital and associated 
labor, except where carried on by voluntary, democratic 



478 TEXT-BOOK OF ECONOMICS 

cooperation; (4) organization of all labor essential to the 
public service, such as the building of schools, hospitals, 
docks, roads, bridges, sewers, and the like ; the construction 
of all the machinery and plants requisite to the social pro- 
duction and distribution, and of all things necessary for the 
maintenance of those engaged in such public services as 
the national defense and all who are wards of the State; 
(5) a monopoly of the monetary and credit functions, in- 
cluding coinage, mortgaging, and the extension of credit 
to private enterprise. With these economic activities under- 
taken by the State, a pure democracy differing vitally from 
all the class-dominated states of history, private enterprise 
would by no means be excluded, but limited to an extent 
making the exploitation of public interests and needs for 
private gain impossible. Socialism thus becomes the de- 
fender of individual liberty, not its enemy. . . . The 
future is not a life completely enmeshed in a network of 
government, but a life with a minimum of restraint." It 
is interesting to note in the above that the author only in- 
cludes under government ownership and operation all 
industrial production, production involving large capital 
and associated labor, except where carried on by voluntary, 
democratic cooperation. The possibility of the social 
"individualist," and the individualistic Socialist some day 
standing on one and the same platform does not seem far 
removed when one notes the changes of thought that have 
occurred in the past century. 

The following from New Worlds for Old by H. G. Wells 
shows to how large a degree the modern Socialist is trying 
to remove the name Utopian from his cause — a charge 
which has kept from his ranks a large number of men of 
practical affairs: "I myself am the profoundest believer 
in democracy, in a democracy awake intellectually, conscious 
and self-disciplined; but so long as this mystic faith in 
the crowd, this vague, emotional, uncritical way of evading 
the immense difficulties of organizing Just government and 



THE PROGRAMME OF SOCIALISM 479 

a collective will prevails, so long must the Socialist project 
remain not simply an unpracticable, but in an illiterate, 
badly organized community — even a dangerous suggestion. 
I, as a Socialist, am not blind to these possibilities, and it 
is foolish because a man is in many ways on one's side that 
one should not call attention to his careless handling of a 
loaded gun. Social democracy may conceivably become 
a force that in the sheer power of untutored faith may destroy 
government and not replace it." Perhaps the future of 
the whole Socialist movement cannot be better stated than 
by again quoting from H. G. Wells : " The modern Socialist 
considers that this generalization" [i.e., of an inevitable 
class war, of a revolution followed by a millennium] "is 
a little too confident and comprehensive; he perceives that 
a change in custom, law, or public opinion may delay, arrest, 
or invert the economic process; that Socialism may arrive 
after all not by a social convulsion but by the gradual and 
detailed concession of its propositions. The Marxist pre- 
sents dramatically what after all may come, methodically 
and unromantically, a revolution as orderly and quiet as the 
precession of the equinoxes. There may be a concentration 
of capital and a relative impoverishment of the general 
working mass of people, for example, and yet a general 
advance in the world's prosperity and a growing sense of 
social duty in the owners of capital and land may do much 
to mask this antagonism of class interests and ameliorate 
its miseries. Moreover, this antagonism itself may, in the 
end, find adequate discussion and the class war come dis- 
guised beyond recognition with hates mitigated by charity, 
swords beaten into pens, a mere constructive conference 
between two classes of fairly well-intentioned, albeit perhaps 
still biased, men and women." 



480 TEXT-BOOK OF ECONOMICS 



TOPICS FOR CLASS DISCUSSION 

1. Prepare a short discussion of the life of Karl Marx for the purpose 
of showing the cause of his reform work. 

2. Was Marx correct in assuming that labor is the sole cause of value 
in exchange? 

3. Give a brief account of Saint-Simon, Fourier, Robert Owen. 

4. What effect has the acceptance of the Great Man Theory of 
History? 

5. What is exploitation? 

6. What is the proper remedy for exploitation? 

7. Of the bases of modern socialistic thought, which appears to you 
to be the strongest? 

8. To what extent is the idea of curtailment of freedom through State 
legislation gaining ground in the United States? 

9. Discuss the Christian Socialist movement. 

10. Why has State Socialism had such a rapid rise in Germany? 

11. Show the different bases of Christian and State Socialism. 

12. What is the relation between State Socialism and Communism? 

13. Why has Communism failed where it has been tried? 

14. What is Anarchy? Discuss the Anarchist's doctrines. 

15. Of the phases of sociaHstic thought, which do you regard as most 
rational? Which is most ideal? Which is most undesirable? 

16. What are the leading economic doctrines in the platform of the 
American Socialist Party? 

17. To what group in the community do the doctrines of Socialism 
make their strongest appeal? 

18. Theoretically, which group in the community would be the chief 
gainer through Socialism? 

19. Outline the best arguments in favor of SociaHsm. 

20. Outline the best arguments against Socialism. 

21. What attitude should the average citizen take toward Socialism 
as advocated by the present Socialist Party in the United States ? Why ? 



CHAPTER LXV 

THE PROGRAMME OF SOCIAL WORK 

In the scientific world of late there have been two develop- 
ments of thought which in a measure complement each other. 
The one has been in the realm of biology, the other of soci- 
ology. Students of the subject of heredity now hold the 
position that individuals are at birth more nearly on a plane 
of equality than our ancestors had ever before dreamed. 
They maintain that in the human germ cell from which the 
individual life springs, lie all the qualities of a normal man- 
hood. These qualities are latent, however, and await a 
proper opportunity to unfold themselves much as does the 
bud of a flower. 

The Sociologist comes forward with complementary evi- 
dence. Science is daily revealing to him that in environment 
are to be found the chief causes of disease, poverty, and crime. 
Both biology and sociology unite in saying, would you 
improve man, you must first improve his environment. 
Had the development of thought in these two sciences been 
in the opposite direction and had they laid their chief emphasis 
on heredity as the great determining factor in life, the out- 
look for the conscious advancement of society would have 
been dark. Changes in society through the force of heredity 
require thousands of years. 

The earliest recorded history gives us no evidence to show 
that man has materially changed through the action of biologic 
laws. Moreover, had heredity been given precedence over 
environment, there could be no programme of social work. 
This follows from the fact that to a large extent heredity 

21 481 



482 TEXT-BOOK OF ECONOMICS 

is a fixed force and difficult of any modification, while en- 
vironment is plastic and hence capable of immediate change. 

Granting that the environment is plastic, little could be 
made of this fact by itself as far as the conscious improve- 
ment of society is concerned. The problem of social work 
presupposes two other facts. One, that nature is generous 
and not niggardly, and, therefore, has supplied the means of 
making possible a high standard of living for each of our 
ninety millions of people. The other, that a fund of 
knowledge is rapidly accumulating in the realm of social, 
economic, and political science, which makes it possible to 
have a scientific constructive programme for social welfare. 

Through invention, discoveries, the accumulation of 
knowledge, through the industrial revolution and all the 
accumulated benefits which come from past ages and which 
we term civilization, man has changed an age of deficit into 
an age of surplus. With the generous resources of the world 
and man's present knowledge of how to make the most of 
them, the days of scarcity and famine are gone. The means 
are at hand for every person to be well housed, clothed, and 
fed, without depriving any one else of his full share. 

With the possibility of economic security for himself and 
family, one can spare the time to plan for social welfare. 
Until this stage of security is reached, the law of self-pres- 
ervation holds good. Now, however, there is a spirit of 
Good Will abroad in the land which is manifesting itself 
in many forms of philanthropy. Society is beginning to 
look at itself for the first time. The courses in social science 
in the universities are gaining more and more students. 
From a half sentimental interest in the submerged tenth, 
philanthropy is being put on a scientific basis and schools 
of Social Welfare are springing up throughout the country. 
All this changed attitude is furnishing data for a definite 
programme of social work. 

The two thoughts running through the programme of social 
work are, then, first, that man is like a seed containing 



THE PROGRAMME OF SOCIAL WORK 483 

all the possibilities of reaching a full fruition, but, like the 
seed, liable to be dwarfed or stunted at any time in the course 
of his development by a bad environment, and second, that 
the environment is plastic, and, therefore, capable of im- 
mediate modification. 

Throughout the discussion it should be borne in mind that 
environment is a broad term and far more complex than it 
seems at first thought. As contrasted with heredity, it in- 
cludes all forces outside of a man which have a direct or 
indirect influence on him. This includes not only surround- 
ing physical conditions, such as climate, soil, and topography, 
but also the social institutions of the home, church, and 
school, and the influence of associates. 

Every programme has its goal or ideal. The programme 
of social work is no exception. Its aim is a social democracy 
in which there shall be equality of opportunity for every one 
to reach the highest development of which he is capable. 
The programme of social work offers many practical sugges- 
tions to reformers who are often charged with painting a 
glorious ideal but who often fail to point out the way whereby 
it can be reached. 

In analyzing the present conditions, there are three 
phenomena which are at the basis of our modern ills. They 
are overwork, overcrowding, and premature employment. Not 
one is of a nature that will correct itself. They are likely 
rather to increase unless society takes preventive measures. 
They are problems which cannot be left to the short-sighted 
interests of individuals for correction. In the industrial 
equipment of the country are millions of dollars of capital. 
It is to the interest of each individual employer to keep his 
plant running as long a time each day as he can. The only 
limit that he sees to the workday is the limit of actual physical 
exhaustion of his employees. This leads to the anomalous 
position now existing when the length of the workday of 
the great masses is fixed not by their own choice but by a 
relatively small number of employers. It has been esti- 



484 TEXT-BOOK OF ECONOMICS 

mated that every one could be housed, clothed, and fed if 
each person worked but six hours a day. Yet if the masses 
desire employment at all they must accept a nine- or ten-hour 
workday. 

The second evil, that of overcrowding, seems to be on the 
increase. New York City, with nearly a million immigrants 
a year entering her port, presents a most striking instance 
of this. The west and south of this country are calling 
for workmen. In New York the workmen are calling for 
work and sweat-shop wages and conditions result. Besides 
this most important question of irregular employment and 
low pay, overcrowding leads to unhygienic housing con- 
ditions. In this direction New York City and Chicago stand 
as glaring examples of what should not be. They are the 
result of lack of foresight. Hundreds of other towns and 
cities in the Union still have their own making in their hands. 
In this day, when city planning is a recognized science, any 
town which grows up without an adequate system of parks 
and boulevards invites evils which it may never be able fully 
to remedy. 

The third evil, premature employment, is one with 
results so far-reaching that they extend "unto the third and 
fourth generation." The basic thought of the programme of 
social work as stated in the opening words of this chapter is 
"that in the human germ cell from which the individual 
life springs, lie all the qualities of a normal manhood. These 
qualities are latent, however, and await a proper opportunity 
to unfold themselves much as does the bud of a flower." 
There is nothing which so quickly arrests the normal develop- 
ment of a child as premature employment. It dwarfs him 
physically, mentally, and often morally. Instead of becoming 
an intelligent member of the community, he adds to the 
ranks of the inefficient and illiterate. After three genera- 
tions of child labor in the Manchester cotton mills, the phy- 
sique of the average factory worker was so far below the 
normal that the English government had to turn down nine 



THE PROGRAMME OF SOCIAL WORK 485 

out of every ten who applied for service during the late Boer 
War. The National Child Labor Committee of this country 
is unearthing illustrations hardly less remarkable. 

There was a time when work was of itself educational. 
The present reign of the large machine of which the attendant 
becomes but a part has made that day a thing of the past. 
The average factory work of to-day is deadening the intellect 
and dwarfing the body. 

A hundred years or more ago the State had no interest in 
the child problem. It was considered as something of a 
purely individual nature. To-day we realize that in the child 
lies the hope of the future. To him the State must look for 
guidance and wisdom when its present citizens have passed 
away. The training of the rising generation is no longer re- 
garded as an isolated private matter. The programme of 
social work aims to protect children from incompetent, self- 
ish, or wicked parents. It advocates children's aid societies 
and a rigid enforcement of child-labor and compulsory edu- 
cation laws. 

To fight against overwork, overcrowding, and child labor 
is but the negative side of the programme of social work. 
The positive side still remains for presentation. It contains 
five distinct lines of action covering the subjects of Health, 
Efficiency, Leisure, Amusement, and Mobility. These we 
will now discuss in the order named. 

Health. — We are just beginning to appreciate how much 
inefficiency and even crime is due to poor health. Adul- 
terated and unwholesome food from infancy means a de- 
vitalized, inefficient man. Dark and unsanitary rooms 
lay the foundations for the ravages of tuberculosis with its 
accompanying suffering and loss of work power. In running 
through the files of records in any charity organization 
office one is struck with the number of families that are 
forced over the poverty line because of sickness. It is often 
stated that were there no drinking there would be no poverty. 
It would be nearer the truth to say that were there no sickness 



486 TEXT-BOOK OF ECONOMICS 

there would be no poverty. Such being the dose relation 
between health and common welfare, the programme of social 
work includes an alliance with all movements in a community 
whose end is improving the general health. This would 
embrace measures for tenement-house reform, clean streets, 
pure milk and water supply, and for stamping out epidemics 
by efficient quarantines. Under the head of health comes 
the need of an efficient factory inspection, as the health and 
happiness of many millions of toilers, especially women 
and children, depend on this branch of the government. 
The programme of social work should endeavor to bring to 
the doors of the people the best of medical science. This 
would include a network of efficient hospitals and dispen- 
saries throughout each city, as well as a system of State 
sanatoria for the prevention and cure of tuberculosis such as 
many of the northern States are now putting into operation. 

Efficiency. — If people are healthy, they are a great way 
on the road to efficiency. Give a man health and his native 
ability comes to the front. He becomes aggressive. How- 
ever, health is but the foundation upon which efficiency is 
built. The programme of social work, therefore, stands op- 
posed to child labor. The evil results to body, mind, and 
morals of premature employment are to-day a matter of 
common knowledge based on recorded facts. A stunted body 
with a mind not only untrained but actually deadened by 
the monotony of a machine age, gives little promise of 
efficiency. The programme of social work calls for a fear- 
less and vigorous prosecution of the campaign against 
child labor. 

The positive measures looking toward an increase in 
general efficiency include a reconstruction of our educational 
system. In this country we are just beginning to appreciate 
the need of a type of education whose end is efficiency. 
This is a need which Germany felt long ago and which she 
has since partly met through her excellent trade and technical 
schools. The programme of social work would seek to pro- 



THE PROGRAMME OF SOCIAL WORK 487 

vide public trade schools where young people could become 
efficient workmen in their respective vocations. Along with 
these trade schools, the social programme calls for a revision 
of the general school curriculum so that it will better prepare 
one for the problems of modern life. That all education 
from the kindergarten to the end of a university course should 
be free and accessible to all is included in such a programme. 

Leisure. — Closely related to the question of efficiency 
is that of leisure. This is taking the form of demands for 
a shorter workday, a universal Saturday half holiday, or a 
greater length to summer vacations. In this age when we 
harness the forces of nature and make them work for us, 
when we use vast machines accomplishing the work of scores 
of individuals, greater leisure is a possibility, and in addition 
it is desirable as being the most economical. Happy work 
makes efficient work, while labor in which man is made 
a human machine is not economical. It is contended, and 
with a fair show of reason, that in the long run a man who 
is working on an eight-hour basis accomplishes as much, 
if not more, than his fellow- workman on a ten- or eleven-hour 
schedule. 

Moreover, from a social viewpoint, it is appalling to realize 
that as industry is organized to-day one third of the male 
breadwinners of the country die between the ages of twenty- 
five and fifty-five. This does not include the many who are 
incapacitated for work between those years and gives no 
idea of the misery and suffering to which they and their 
families are subject. 

The programme of social work indorses all movements 
looking toward an increase in leisure such as the campaign 
for an eight-hour day, or early closing on Saturday. Beyond 
the question of the relative productiveness of the nation on an 
eight- or a ten-hour basis, the social worker has a further 
interest in the increase of leisure because it affords opportunity 
for recreation, — the subject of the fourth plank of the 
programme of social work. 



488 TEXT-BOOK OF ECONOMICS 

Amusement. — Man living in primitive times was in 
direct contact with nature. He raised his own food, made 
his own clothes, and built his own house. He had many 
chances of varying his occupation throughout the day. All 
his work was educational. He had the stimulus of seeing 
a piece of work begun and ended, and of enjoying the fruits 
thereof, — all this is in marked contrast with the life of the 
average factory worker. All those qualities which one ad- 
mires most in a man are deadened when he is compelled to 
stand day after day, and week after week, before a huge 
machine of which he becomes but a part. 

It is during leisure rather than during work time that 
character is formed. The basis of character is the will, and 
at no time does this function of the mind have so free a scope 
as during recreation. It is then that all restraint is removed 
and we do as we will. The excellent effect of recreation on 
character is seen in children at play. Often for the first time 
they learn the meaning of self-restraint. They learn the 
significance of cooperation and group action in those games 
requiring team work. At play, the cheat is quickly dis- 
covered and punished with ostracism by his fellows. Such 
object lessons in the fundamentals of morality are invaluable 
in the normal development of any child. After all, character 
is acquired from the environment and not from the blood. 
Amusement is gaining recognition as a force as potent as 
formal instruction. The social worker would aim to have 
this force applied to social ends, instead of allowing it 
to be exploited for commercial purposes, as is largely the 
case to-day. The facilities that the stage has for doing 
moral and educational work are tremendous. Its appeal 
is universal, and it can reach many to-day to whom literature 
and art would appeal in vain. Since recreation may have 
the threefold value of aiding health, morals, and intellect, 
the social worker strives to make public swimming pools, 
band concerts, amusement parks, popular yet wholesome 
theaters, playgrounds, and recreation centers more and 
more universal. 



THE PROGRAMME OF SOCIAL WORK 489 

Mobility. — In the chapter on the Theory of Wages, it 
was pointed out what valuable aid mobility of labor is in the 
prevention of a cut in wages due to congestion in a particular 
labor market. The more mobile labor is, the more steady 
and uniform is the rate of wages throughout a country. There 
is a definite relation between the number of positions and the 
number of workers for those positions on the one hand and 
the rate of wages on the other. If positions outnumber men, 
wages rise; if men outnumber positions, wages fall. The 
ability of labor to move from a crowded labor market to one 
poorly supplied is of the utmost significance to social welfare. 
Much of the misery in New York City could be removed 
were there a proper redistribution of her surplus population 
throughout the rest of the country, principally in the West and 
South. 

It is part of the programme of social work to remove people 
struggling on the margin, as are many families in the sweated 
trades of larger cities, to locations giving better chances of 
survival. For this reason the social worker is interested in 
cheap means of transportation available for the masses. He 
encourages immigration bureaus, whose chief business it is to 
direct the newly arrived immigrant to fields most needing 
him. He desires to see the establishment of direct steamship 
lines between Europe and the South, instead of increasing the 
present congestion in New York and Chicago. The social 
worker desires not only to improve the environment, but also 
to place people in the best environment immediately avail- 
able. 

Besides striving for the five ideals of Health, Efficiency, 
Leisure, Amusement, and Mobility, the social worker has 
other functions hardly less important. First among these is 
to be a demonstrator, proving to society at large the practi- 
cability of his ideals. Almost every function now exercised 
by the State in the interest of social advance was begun by 
private initiative. The public school system, which had its 
birth but yesterday in our educational history, is the outcome 



490 TEXT-BOOK OF ECONOMICS 

of private philanthropy. So also there was a time when the 
only hospitals were those on private foundations. The 
present municipal lodging houses, state sanatoria for fighting 
tuberculosis, and free libraries were all first worked out on a 
private basis. After their utility was once demonstrated, 
they gradually became part of the function of the State. A 
legislature is a large and slowly moving body. Its many 
duties leave it little time to work out new programmes of social 
advance. It is here that the social worker can render his 
most patriotic service to the State. He can outline, organize, 
experiment, if need be, but demonstrate above all to the State 
the real value of his particular line of endeavor. Those 
efforts which bear the stamp of approval of the people will 
ultimately become a State function, though a corrupt legis- 
lature may for the time make difficult the line of progress. 
As far as finance is concerned, money can be secured for 
carrying on experiments which have a reasonable amount of 
common sense back of them. The writer recently attended 
a lecture given under the auspices of a certain social better- 
ment association. Solely as the result of a brief ten minutes' 
talk given by the secretary of the organization in introducing 
the lecturer of the evening, four or five thousand dollars were 
pledged by a few men for an entirely new project which the 
society desired to undertake. This does not seem to be an 
exceptional case. The American public is essentially gener- 
ous. It needs, however, scientifically trained minds to direct 
this generosity into effective, constructive channels. This is 
the second function of the social worker. The third function 
consists in molding public opinion by holding up new ideals. 
The chief of these is the thought, now gradually permeating 
society, that poverty is curable and preventable. People have 
so long seen the sights of poverty that the eyes have become 
accustomed to them. With a scientific diagnosis of poverty, it 
becomes apparent that there are many points in common 
between disease and poverty in that each has its causes and 
cures. In so far as these causes are almost entirely environ- 



THE PROGRAMME OF SOCIAL WORK 49! 

mental, they come within the scope of the programme of 
social work. 

A second ideal that the social worker holds out is the 
ultimate attainment of a real democracy where each man 
counts as one. In so far as the chief obstacles of this are 
environmental — lack of opportunity — means for attaining 
this ideal come within the purview of the social worker's 
programme. 

The third ideal that the social worker stands for is a clearer 
and truer view of the function of the taxing power of the 
State. Too long has taxation been viewed in the light of a 
robbery, and that which should be kept as low as possible or 
else evaded whenever chance offers. The funds for the old 
type of charity were derived directly from private sources. 
The funds for the new philanthropy, with its efficient schools, 
playgrounds, and the like, must come from public sources, 
that is, from private sources by means of taxation. This 
may be so accomplished as to be little felt by individuals, but 
whatever the method, it involves a new attitude toward the 
subject of taxation. In primitive communities or small 
rural towns, the problems of charity can generally be solved 
by simple means. It is a question of personal service between 
neighbors. This individual method of work fails, however, 
when it confronts the gigantic and complex problems of 
modern city life. A larger unit than the family or individual 
is needed in the municipal battle with disease and poverty; 
a more efficient weapon is needed than that of personal service 
and sacrifice. The small unit of the family must be re- 
placed by the municipality, which alone can effectively cope 
with sanitary and housing problems. We have reached a 
point in our development when the small resources of indi- 
viduals here and there must be replaced by all the resources 
of the municipality. The city has the taxing power. No 
better use of its funds can be found than that whose chief 
end is social betterment. 

One cannot understand the growing enthusiasm for social 



492 TEXT-BOOK OF ECONOMICS 

work unless he appreciates the religious nature of the appeal 
that it makes. Social work and religion both emphasize the 
subordination of the individual to the happiness and welfare 
of society. Both are idealistic and in a large measure each 
has the same ideal — universal brotherhood. Religion, 
hundreds of years before either sociology or socialism was 
heard of, compared society to a living organism all parts of 
which are equally important though performing different 
functions. " But now are there many members, yet but one 
body." "And the eye cannot say unto the hand, I have no 
need of thee ; nor again the head to the feet, I have no 
need of you." "And whether one member suffer, all the 
members suffer with it ; or one member be honored, all the 
members rejoice with it." 

The social worker likewise views society as a living organ- 
ism, all parts of which are related and deserve due considera- 
tion. As civilization grows older this is increasingly true. 
Daily our lives are thrown into closer and closer contact. 
Repeatedly we are compelled to put our lives into the hands 
of people whom we not only do not know, but probably will 
never have the opportunity even to see. It is of vital inter- 
est for society to know what kind of intelligence and steadi- 
ness of nerve and hand its locomotive engineer has. As 
our cities become larger and larger, the welfare of our neigh- 
bor becomes of greater and greater importance, — so great, in 
fact, that we dare not leave such affairs to be settled by the 
conflicting interests of individuals. 

This desire to supplement the work of religion may seem 
presumptuous and the programme too large for successful 
execution, but the problems to be faced are large, and only 
a broad constructive programme will suffice. The social 
worker must make real the new civilization now within our 
grasp. Its basis is now here. The programme is already 
in the making. Knowledge creates zeal, and zeal will bring 
to pass the transformation that knowledge opens up. 



THE PROGRAMME OF SOCIAL WORK 493 



TOPICS FOR CLASS DISCUSSION 

1. Who are the leaders in social work in America to-day? 

2. What is meant by the expression "environment is plastic"? 

3. What measures are being taken to-day to overcome overcrowd- 
ing? premature employrhent? 

4. What steps are being taken to accomplish a better distribution of 
population in this country? 

5. What attitude does the advocate of social work take on the sub- 
ject of the taxing power of the state? toward education? 

6. What are some of the leading lines of activity in social work now 
being undertaken in America? 



INDEX 



Accidents, Industrial, 155. 

Effects of, 157. 
Agriculture, American, 62. 
Arbitration, in labor disputes, 407. 

Compulsory, 409. 

Voluntary, 409. 

B 

Blacklists {see Boycotts and Blacklists). 

Boss, the, 182. 

Boycotts and Blacklists, 395. 

Classes of Boycotts, 396. 

Definitions of, 395. 
Business Organization, 15. 

Tendencies in, 234. 
By-products, 16. 

Cotton Seed, 225. 

Of Beef Industry, 222. 

Utilization of, 220. 

Varieties of, 221. 



Capital of the United States, 13. 

Definition, 13. 

Origin and Character, 161. 
Capital, Forms of, 170. 
Carnegie Steel Company, 291. 
Child Labor, 141. 

Effects of Factory Work, 143. 

Effects on Family Life, 145. 

History of the Problem, 141. 

In Germany and Prance, 142. 

In the South, 143. 
China, a Nation of Deficit, 1. 

Natural Wealth of, 2. 
City Life and the Labor Force, 123. 

Can be Improved, 130. 

Cause of Increase in, 124. 

Effect on Population, 126, 130. 



Extent of, 124. 

Lessens Social Control, 129. 
Collective Bargaining, 379. 

And the Worker, 380. 

Definition of, 379. 

History of, 379, 380, 381. 
College Education and Industry, 134. 

Special Courses, 135. 
Combinations, 259. 

Advantages of, 261. 

Causes of, 259. 

Economies of, 26,1. 

Outlook for, 265. 

Professor Bullock on, 263, 264. 
Competition, 264, 265, 472, 473. 
Consumption, Changes in, 38. 

Definition, 38. 

Variety in, 40. 
Cooperation, Methods of, 424. 

Advantages of, 427. 

Definition of, 430. 

Essentials for, 432. 

In Consumption, 431. 

In the United States, 425. 

Reason for Failure of Producers', 428. 

Results of, 430. 

Rochdale Pioneers, 424. 

Three Kinds, 431. 
Corporations, 268. 

Advantages of, 268, 269. 

And the Public, 296. 

Bureau of, 308. 

Future Control of, 308. 
Corruption of PubHc OflScials, 316, 317. 
Cost of Industrial Progress, 154. 
"Cost" Prices, 453, 455, 456- 



D 



Distribution, Theory of, 340. 

Complicated by Wage Relation, 341- 
Productivity theory of, 452. 

Distribution of Wealth, 17. 



495 



496 



INDEX 



Economic Life, 24. 
Programmes, 443. 
Readjustments in, 30. 
Clothes, 32. 
Education, 33. 
Food, 30. 
Health, 34. 
Houses, 31. 
Recreation, 36. 
EflBciency and Social Work, 486. 
Eight-hour Day, 385. 

Effect of Trade Union Action, 387. 
History of Movement for, 385. 
In Australia, 386. 
In the United States, 386. 
Electric Lighting, Municipal, 327. 

Increasing use, 331. 
Elkins, Law of 1903, 254. 
Entrepreneur, 267, 



Factory, Definition of, 200. 
Factory System, The, 200. 

Advantages of, 204. 

Development in America, 201. 
Food Supply, 30. 
Forestry, 91. 

Needs for Scientific, 91. 
Forests, 82. 

Annual Output, 84. 

Areas in the United States, 84. 

Future of, 88. 



Gas, Municipal Supply of, 327. 

History of Use, 327. 

Manufacture of, 328. 

Social Effects of Use, 329. 
Goods, 24. 
Government Regulation, Programme of, 

452- 
And Labor, 455. 
And Protection, 456. 
Productivity Theory and, 452. 



H 



Health and Social Work, 485. 



Immigration, 118. 

And Standard of Living, 121. 

As a Modern Problem, 118. 

Race Efficiency, 120. 

Source of, 119. 

The Early Colonists, 119. 
Industry, Rise of Modern, 256. 

Combination, 259. 

Home Industry, 256. 

Large-scale Production, 257. 

Small-scale Production, 257. 
Injunctions, in Labor Disputes, 398. 

Anti-Injunction Law, 405. 

Arguments against Use of, 403. 

Arguments for Use of, 402. 

Cause of Use, 398. 

Definition of, 398. 

Government by, 399. 

History of, 400, 401. 

In the Pullman Strike, 400. 

Punishment of Offenses against, 
401. 
Interest, Theory of, 349. 

Definition of, 349- 

From what Source Derived, 352. 

What determines Rate of, 351. 

Why Paid, 350. 
Interstate Commerce Act, 251. 

Criticisms of, 253. 

Provisions of, 252. 
Interstate Commerce Commission, 252. 

Powers of, 253. 
Inventions and Industry, 206. 

And the Home, 208. 
Irrigation, 70. 

History of, 70. 

Possibilities of, 73. 



Japan, Rapid Development, 2. 



Labor, American, of Foreign Origin, 
112. 

Definition, 10. 

Exploitation of, 352, 353, ^71. 

Mobility of, 371, 373. 

Monopoly power of, 360, 383, 384. 
Labor as an Agent in Production, 107. 



INDEX 



497 



Labor Cooperation, 194. 

Labor Force of the United States, 9. 

Laissez-faire, 453, 477. 

In England, 444. 
Land, Definition, 60. 

Reclamation, 70. 
Large-scale Production, 213. 

Advantages and Disadvantages, 228. 

Causes of Development, 217. 

Prevalence, 215. 
Leisure and Social Work, 487. 
Lockouts. See Strikes. 
Luxury, 27, 54. 

M 

Manager, 180. 
Mineral Products, 1900, 80. 
Mineral Resources, 77. 
Mobility and Social Work, 489. 
Money, Place in Economics, 24. 
Monopoly, A Residual Claimant, 371. 
Monopoly, Power of Labor, 360. 
Municipal Monopolies, 310. 

Gas and Electricity, 327. 

Municipal Ownership and operation 
of, 334. 

Transportation, 314. 

Water, 321. 

N 

National Association of Manufacturers, 

- 381, 382. 
Necessities, Definition of, 54. 

O 

Open Shop, 382. 

Four Kinds, 383. 
Organizer, the, 177. 
Overcapitalization, 299, 300. 



Pace Setting, 388. 

Outcome of Modern Industry, 388. 

Unjustifiable, 390. 
Partnership, 267. 
Physiocrats, Doctrines of, 459- 
Political Economy, Study of, 20. 

Objects of, 22. 
Power of Substitution, 366, 369, 372, 

375, 377- 
Price Control, 296, 297, 298. 
Production, definition of, 20. 



Profit Sharing, Methods of, 435. 

A Palliative, 442. 

History of, 436. 

In the United States, 439, 

Outlook for, 439. 
Profits, Theory of, 355. 

A Differential, 355. 

A Form of Wages, 356. 

Definition of, 355. 

Fluctuation of, 357. 
Promoter, 261. 

Prosperity, as an Economic Force, i ^ 
Publicity, 309, 317, 318. 
Public Utilities, 18. 

R 

Race Efficiency, 120. 

Railroad, as a Public Utility, 241. 

As a Monopoly, 243. 

As a Public Highway, 244. 

Consolidation, 242. 

Discriminations, 246. 

Growth of Mileage, 242. 

Pooling, 252, 253. 

State Aid to, 245. 
Railroad Control, 250. 

Act of 1906, 254. 

Elkins Law of 1903, 254. 

History of, 251. 

Interstate Commerce Act, 251. 
Rent, Theory of, 343. 

Differential, 346. 

Economic, 343. 

Fertility as a Cause of, 343. 

Location as a Cause of, 344. 

Marginal, 346. 

"No-rent" Land, 345. 

Social Value as a Cause of, 345. 
Restriction of Output, 387. 

Unjustifiable, 390. 



Sanitation, and Modern Industry, 

158. 
School, and Labor Force, 133. 

And the Negro, 134. 

Necessary to Success, 134. 

Needs of, 138. 

Value to Industry, 133. 
Sherman Anti-Trust Act, 305. 

Inadequate, 309. 

Provisions of, 306. 



498 



INDEX 



Single Tax, Programme of, 458. 

Arguments for, 463. 

In New Zealand, 466. 

Land Monopoly and, 458. 

Physiocrats and, 459. 

Unearned Increment, 461. 
"Smokeless sin," 449. 
Socialism, Programme of, 470. 

Objections of, to Present Society, 

471. 472. 473- 

Objects of, 470. 
Social Surplus, 6. 
Social Work, Programme of, 481. 

Aim of, 483. 

Amusements and, 487. 

Efficiency and, 486. 

Health and, 485. 

Leisure and, 487. 

Mobility and, 489. 

Positive Side of, 485. 

Religion and, 492. 
Square Deal, Programme of, 447. 

And Publicity, 449. 

Interest in Future, 450. 
Standard of Living, 43. 

Definition, 43. 

Maintenance of, 44. 

Rise in Prices, 49. 

United States Figures, 50. 
Standard Oil Company, 272. 

Dissolved, 284. 

History of, 272. 

Methods of, 282. 

Railroad Contracts of, 278. 

Reasons for Success, 285. 
Street Railways. See Transportation, 

Municipal. 
Strikes and Lockouts, 392. 

Definitions of, 392. 

Employer and, 392. 

Identical to the Public, 392. 

Public and, 394. 

Worker and, 393. 
Swamp Drainage, 73. 



Tariff, 287, 448, 456. 

Taxation, 491. 

Trade Agreement, 407. 

Definition of, 407. 

Use of, 408. 
Trade Union, 412. 



Trade Union, Activities of, 418. 

Change to Industrial Unions, 414. 

Effect on Immigrants, 415. 

History of, 412. 

Objections to, 417. 

Origin of Name, 413. 

Professor Patten on, 420. 

Value to Employers, 416. 

Value to General Public, 417. 

Value to Members, 414. 
Transportation, Municipal, 314. 

Essentially a Monopoly, 314. 

Franchise Granting, 317. 

History of, 316. 

Overcapitalization of, 315. 

Social Service of, 318. 
Trust, 270. 

Difficulty of Regulation, 306. 

Effects on Prices, 296, 297. 

Future of Regulation, 308. 

Legislation, 305. 
History of, 305. 
Sherman Act, 305. 

Standard Oil Company, 272. 

Steel Trust, 286. See United States 
Steel Corporation. 

Stock Manipulations, 302. 

Stock Watering, 300. 



U 



Unearned Increment, 461. 

Unions. See Trade Union. 

United States, a Nation of Surplus, i. 

Agriculture, 62. 

Forests, 82. 

Labor Force of, 9. 

Mineral Resources, 77. 

Natural Wealth, 8. 

Soil and Climate, 60. 

Water Power, 93. 

Water Transportation, 99. 
United States Steel Corporation, 286. 

Causes of Organization, 293, 294. 

Causes of Success, 294. 

Mechanical Devices used by, 290. 

Origin, 286. 
Utility, Definition of, 20. 

Of Form, 21. 

Of Place, 21. 

Of Possession, 22. 

Of Time, 21. 
Utilization, 38. 



INDEX 



499 



w 

Wage Worker, the, 185. 

And the Public School, 189. 

The Immigrant as, 188. 
Wages, Theory of, 359. 

Increasing or Decreasing, 363. 

Law of Supply and Demand, 361. 

Not a Residual Claimant, 371. 

Regulated by Substitution, 362. 

Why Unequal, 360. 
Water, Municipal Supply of, 321. 
Water Power, 93. 



Development of, 93. 

Economy of, 97. 

Extent of, 94. 
Water Transportation, 99. 

Advantages of, 102. 

Extent of, 100. 

Need for, 99. 
Women Who Work, 147. 

Arguments against, 151. 

Arguments for, 151. 

Numbers, 147. 

Reasons for, 147. 



S£^ -- 



